Outline  In-Class Experiment on the Provision of Public Good  Test of Free-Rider Hypothesis I: Marwell and Ames (1979)  Test of Free-Rider Hypothesis II: Marwell and Ames (1980)  Test of Free-Rider Hypothesis III: Issac and Walker (1988)  Why: Kindness versus Confusion? Andreoni (1995)

Public Good Experiments  Individual endowment is and n individuals in a group  Invest in Private and Public exchanges:  i’s returns from Private and Public exchanges are:  Individual’s utility function:

Dependent Variables  Investment in Public exchange:  % of individuals who invest 0 in public exchange, Pr

Instructions – Private returns

Instructions – Public returns

This Experiment  Individual endowment is $0.6 and 5 individuals in a group  Invest in Private and Public exchanges: $0.6 – m i, m i  i’s returns from Private and Public exchanges are respectively:  Introduce a new treatment: Actual payoff based on ranking of experimental payoffs rather than the experimental payoff itself  remove incentives for kindness such as altruism

Three Treatments  Three treatment conditions  Regular – actual payoff computed directly from experimental returns  Rank – rank of experimental payoff is known, and actual payoff depends on the rank of the experimental returns  RegRank – rank of experimental payoff is known, and actual payoff computed directly from experimental returns  % of Free Rider (Rank) = an estimate of cooperation due to confusion  % of Free Rider (Rank) - % of Free Rider (RegRank) = an estimate of cooperation due to kindness  % of Free Rider (RegRank) - % of Free Rider (Regular) = An estimate of either cooperation or kindness

Rank Condition Actual Payoff = If there are ties in ranking, payoff is averaged off, e.g., if three subjects rank 1, actual payoff to each of the 3 subjects is ( )/3

Comparison

Pr

Findings  As predicted, Cooperation in Rank < RegRank < Regular  On average, 75% of subjects are cooperative  Half of those who cooperate are really confuse, while half are really kind  Information about rank decreases the amount given much more than it decreases the number of givers  For some subjects, kindness depend on reciprocity

Summary