Gunning for Efficiency with Third Party Enforcement in Threshold Public Goods

18 Pages Posted: 2 Jun 2015

See all articles by James Andreoni

James Andreoni

University of California, San Diego (UCSD)

Laura Gee

Tufts University; IZA

Date Written: September 1, 2013

Abstract

When public goods can only be provided when donations cross a minimum threshold, this creates an advantage in that Pareto Efficient outcomes can be Nash Equililibria. Despite this, experiments have shown that the groups struggle to coordinate on one of the many efficient equilibria. We apply a mechanism used successfully in continuous public goods games, the Hired Gun Mechanism (Andreoni and Gee, 2012), to see if it can successfully get subjects across the threshold. When we use the mechanism to eliminate only inefficient equilibria, without addressing coordination, there is a modest but statistically insignificant improvement with the mechanism. However, when we hone the mechanism to eliminate all but one of the provision-point equilibria, thereby addressing the coordination issue, the mechanism moves all subjects to the desired efficient outcome almost immediately. In fact, after only one round using the hired gun mechanism, all subject are coordinating on the chosen equilibrium. The mechanism can be applied in settings where a group (1) has a plan for public good provision, (2) can measure contributions, (3) can fine members and (4) has an agreed upon standard for expected contributions. In these settings simple punishments, when focused on solving coordination as well as free riding, can greatly improve efficiency.

Keywords: Public Goods, Experiment, Laboratory, Equilibrium Selection, Punishment, Free Riding

JEL Classification: C72, C91, C92, D7, H41, H42

Suggested Citation

Andreoni, James and Gee, Laura, Gunning for Efficiency with Third Party Enforcement in Threshold Public Goods (September 1, 2013). Experimental Economics, Vol. 18, No. 1, 2015, Available at SSRN: https://ssrn.com/abstract=2612965

James Andreoni

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

HOME PAGE: http://econ.ucsd.edu/~jandreon/

Laura Gee (Contact Author)

Tufts University ( email )

Medford, MA 02155
United States

IZA

P.O. Box 7240
Bonn, D-53072
Germany

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