Choosing a Community: Providing Local Public Goods When Opting Out is an Option

Abstract

Different community organizations require varying levels of contribution and effort from, and compete for the time, effort, and resources of a heterogeneous population of potential volunteers. Many are not able to sanction free-riders in any meaningful way, and must account for people's ability to opt out of joining groups altogether. I conduct threshold local public goods experiments with two groups, one with a low threshold and one high, and subjects with randomly distributed opportunity costs ("wages''). I allow subjects to opt out of joining a group in some treatments. Overall, I find that subjects self-select -- high-wage subjects choose the low-threshold group, and vice versa. An "entry fee'' -- a small required contribution -- for the high-threshold group increases both provision rates and low-wage subjects' earnings. When subjects are allowed to opt out of joining a group, provision rates fall, but the low-cost group continues to thrive as long as the high-cost group does not have an entry fee. When it does, it once again has a higher provision rate than the low-cost group. Allowing opting out worsens earnings overall for the low-wage individuals, but increases them for high-wage individuals.

Keywords: local public goods, social dilemmas, heterogeneous subjects, endogenous group formation

JEL Classification: C9, H4