We are Not Alone: The Impact of Externalities on Public Good Provision

34 Pages Posted: 31 Aug 2009 Last revised: 14 Dec 2011

See all articles by Christoph Engel

Christoph Engel

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Bonn - Faculty of Law & Economics; Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students; Universität Osnabrück - Faculty of Law

Bettina Rockenbach

University of Cologne

Date Written: December 1, 2011

Abstract

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

Engel, Christoph and Rockenbach, Bettina, We are Not Alone: The Impact of Externalities on Public Good Provision (December 1, 2011). MPI Collective Goods Preprint, No. 2009/29, Available at SSRN: https://ssrn.com/abstract=1463259 or http://dx.doi.org/10.2139/ssrn.1463259

Christoph Engel (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

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University of Bonn - Faculty of Law & Economics

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Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students ( email )

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Universität Osnabrück - Faculty of Law

Osnabruck, D-49069
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Bettina Rockenbach

University of Cologne ( email )

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Cologne, 50923
Germany
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++49 470 8668 (Fax)

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