partners, strangers and free riders: an experimental study on the importance of group composition...

Motivation Experiment Evidence Conclusions References

Partners, Strangers and Free RidersAn Experimental Study on the Importance of Group

Composition for Linear Public Goods Games

Matheus Albergaria de Magalhães*Edvan Soares de Oliveira*

*FUCAPE Business School

Quinto Encontro de Economia do Espírito Santo (V EEES)

FUCAPE Business School, Vitória (ES)

November 3-4, 2014

Matheus Albergaria de Magalhães

Partners, Strangers and Free Riders


SECTIONS

Motivation

Experiment

Evidence

Conclusions

References




MOTIVATION

I Pure Public Goods: non-rival and non-exclusive .

I A few examples:

I Lighthouses (Classic Example).

I National Defense.

I Organizational Knowledge.




MOTIVATION

Examples of Public Goods

Lighthouse National Security

Source: Google Images (https://www.google.com/imghp).




MOTIVATION

Main Challenges:

I Will people take part in collective actions involving publicgoods?

I Will individual actions lead to socially efficient results?




MOTIVATION

Andreoni (1988) reported three consistent results forpublic-goods experiments:

1. No significant evidence of free riding in single-shot games.

2. In experiments involving repeated play, subjects’provisions for public goods tended to decay.

3. Exact free riding was seldom realized.




MOTIVATION

Table 1Marwell and Ames’ (1981) Summary of 12 Different Experiments

Source: Marwell and Ames (1981, Table 2, p.307).Matheus Albergaria de Magalhães



MOTIVATION

My goals today:

I Describe a simple experiment, related to the provision ofpublic goods.

I Evaluate the importance of random rematching for linearpublic goods games.

I Propose future research agenda for related themes.




EXPERIMENT

The Experiment:

1. We ran five-round experiments in a Business School(Accounting, Business, Economics and MBA students).

2. Subjects filled a form deciding how to divide R$ 100between a private and a public good.

3. For each R$ 1.00 invested in the private good, subjectswould receive R$ 1.00.

4. For each R$ 1.00 invested in the public good, subjectswould receive R$ 0.50.

5. Subjects were divided in two groups: (i) ’Partners’ (fixedcomposition); (ii) ’Strangers’ (random composition).




EXPERIMENT

A Linear Public Goods Game

Individuals were given a budget (m), which could be investedeither in a private (x) or public good (g), with x + g = m.

Individual payoffs (Pi) were determined by the followingformula:

Pi = xi + α

n∑j=1

gj (1)

where n was the number of group members. The parameter αwas chosen such that 0 < α < 1.




EXPERIMENT

A Linear Public Goods Game

Given the above game, we may have the following payoffs:

I Investing R$ 1.00 in the public good has a private return ofR$ 0.50..

I ..while it has a social return of R$ 2.50.

I It is Pareto efficient for subjects to invest all of their moneyin the public good..

I ..but, since the private good’s return exceeds the returnfrom the public good, the Nash equilibrium of this game isto invest zero in the public good (free ride).




EXPERIMENTA Linear Public Goods Game

Two main hypotheses related to Random Rematching:

1. ‘Learning Hypothesis’: subjects may not immediatelyunderstand the incentives of the game, but after a fewrounds, they start learning (free riding behavior increases).

2. ‘Strategies Hypothesis’: subjects believe all other subjectsbehave rationally in an incomplete information version ofthe Prisoner’s Dilemma.

Under the ‘Strategies Hypothesis’, we expect that giving by‘partners’ will be greater than giving by ‘strangers’.

On the other hand, as the game approaches the end, we canexpect both ‘partners’ and ‘strangers’ to free ride.




EVIDENCE

Table 2Descriptive Statistics




EVIDENCE

Table 3Free Rider Index (FRI), 5-Round Experiments




EVIDENCE

Graph 1Free Rider Index (FRI), 5-Round Experiments




EVIDENCE

Table 4Percentage of Free Riders in Each Round




EVIDENCE

Graph 2Percentage of Free Riders (Partners)




EVIDENCE

Graph 3Percentage of Free Riders (Strangers)




EVIDENCE

Graph 4Contributions to Public Goods Provision, 5-Round Experiments




EVIDENCE

Table 5Econometric Estimations




CONCLUSIONS

I Main result: ’Strangers’ tended to cooperate more often than’Partners’.

I Other authors reported the same result (Andreoni and Croson2008).

I Our results suggest that random rematching can play animportant role in explaining the evolution of cooperation.




CONCLUSIONS

Future research should concentrate on experiments with thefollowing features:

I Longer periods (10 or 20 rounds) (Andreoni 1988).

I Restarting dates (Andreoni and Croson 2008).

I No communication among subjects.

I Complementarities between the laboratory and the field(Fehr and Leibbrandt 2011).




REFERENCES

ANDREONI, J. Why free ride? Strategies and learning in public goodsexperiments. Journal of Public Economics, v.37, n.3, p. 291-304, 1988.

ANDREONI, J.; CROSON, R. Partners versus strangers: random rematchingin public goods experiments. In: PLOTT, C.R.; SMITH, V.L. (Eds.). Handbookof Experimental Economics Results, v.1. Amsterdam: North-Holland, 2008,p.776-783.

FEHR, E.; LEIBBRANDT, A. A field study on cooperativeness and impatiencein the Tragedy of the Commons. Journal of Public Economics, v.95, n.9-10,p.1144-1155, 2011.

MARWELL, G.; AMES, R.E. Economists free ride, does anyone else?Experiments on the provision of public goods. Journal of Public Economics,v.4, n.15, p.295-310, 1981.




Thank YouMatheus Albergaria de Magalhães

[email protected]

http://www.sites.google.com/site/malbergariademagalhaes



[email protected]

http://www.sites.google.com/site/malbergariademagalhaes

partners, strangers and free riders: an experimental study on the importance of group composition...

Economy & Finance

public good free ride

simple experiment

exact free riding

free riding behavior

public good g

free rider index

private goods

strangers random composition