We are Not Alone: The Impact of Externalities on Public Good Provision
34 Pages Posted: 31 Aug 2009 Last revised: 14 Dec 2011
Date Written: December 1, 2011
Public good provision is often local and also affects bystanders. Is provision harder if contributions harm bystanders, and is provision easier if outsiders gain a windfall profit? In an experiment we observe that both positive and negative externalities reduce provision levels whenever actors risk falling back behind bystanders. The mere presence of unaffected bystanders already dampens contributions. This behavior seems to result from the interplay of two motives: the desire to realize opportunities for joint gains, and concerns for comparative performance. Individual payoff comparisons to the other actors as well as to individual bystanders drive contributions down.
Keywords: Public Good, Externality, Conditional Cooperation, Inequity Aversion
JEL Classification: C91, C92, D03, D43, D62, H23, H41, L13
Suggested Citation: Suggested Citation