Cooperation Versus Free-Riding in a Threshold Public Goods Setting: A Classroom Experiment

Abstract

We present a classroom public goods experiment based on a provision point mechanism, where subjects must make an all or nothing decision about providing the public good. We find that, as a teaching tool, this design is superior to traditional prisoners' dilemma games in which there exists a dominant strategy to free-ride. The provision point mechanism design creates a multiple equilibrium setting while retaining free-riding incentives. Since the provision point design does not incorporate a dominant strategy to free-ride, students must individually choose a level of cooperation (or free-riding) without the benefits of communication. Students quickly discover problems of achieving an optimal social outcome, since free-riding can potentially eliminate benefits to the entire group. We have found this experiment to be an excellent vehicle for introducing game theoretic problems of public good provision and for engendering meaningful discussion of real world applications.

JEL Classification: A2, C9, H4