Public Goods Provision with Rent-Extracting Administrators

Abstract

This paper studies public goods provision in an experiment in which contributors repeatedly interact with rent-extracting administrators. Our main result is that the presence of an administrator reduces contributions but only because rent extraction lowers the MPCR. Analysing the dynamic interactions between the contributors and the administrator, we demonstrate that rent-extraction and cooperation shocks trigger short-run adjustments in the agents’ behaviour. However, shocks do not have permanent effects. This explains the long-run resilience of cooperation to rent extraction. We also show that cooperative attitudes and trust are traits that explain permanent differences in the short-run volatility of public goods provision.

Keywords: cooperation, rent extraction, corruption, trustworthiness, public goods, public trust game, panel vector autoregressive model

JEL Classification: C320, C910, C920, H410