The Poor, the Rich and the Middle Class: Experimental Evidence from Heterogeneous Public Goods Games

Abstract

We present the results of one-shot and repeated public good experiments that seek to understand the interaction between the endowment and marginal return in heterogeneous groups. Our focus is on situations where endowments and marginal returns are either inversely or proportionally related. While two normatively appealing contribution rules are aligned in the proportional treatment, a conflict exists in the inverse treatment. In the one-shot experiment, we do not find significant differences across treatments. Contributions increase when the endowment, the marginal return or both increase. This is observed in all treatments except when endowment and marginal return are inversely related. Then the ‘middle class’ participants (medium endowment and marginal return) contribute more than both the high and low endowment types, mirroring real world observations of a ‘squeezed middle’. This suggests a conflict between the highly endowed subjects (but with low marginal return) and those with a high marginal return (but with low endowment). This pattern is similar when eliciting beliefs about others’ contributions - the two conflicting types expect others to contribute more than they do for themselves.

Keywords: public good provision, heterogeneous return, heterogeneous endowment, middle class, voluntary contribution mechanism, lab experiments