On the crowding effect of public policies Clara Villegas-Palacio University of Gothenburg Camp resource XVII NC State University June, 2010

Presentation Outline  Introduction – crowding motivation theory  Crowding effect of non-monetary interventions on voluntary contributions to PG o Does disclosure crowd-out cooperation? (Joint work with Peter Martinsson) Introduction Experimental Design Main Results  Crowding effect of monetary interventions on VC to PG o Short run and long run crowding effects of subsidies on voluntary contributions Public goods (To be done with Jorge Bonilla and Peter Martinsson) Experimental design

Introduction  Extensive evidence in the literature of voluntary contributions to public goods (PG)  Individual behavior in PG situations is not driven by economic motives alone  Different motivations (Nyborg and Rege 2003) o Altruism (Hammond 1987; Andreoni 1990) o Social norms (Holländer 1990, Rege 2000) o Fairness (Fehr and Schmidt 1999)

Introduction  These motivations may interact with an introduced intervention (policy) leading to crowding in/out of contributions– Consequences for the provision of PG o Monetary interventions Nyborg and Rege (2000) analyze possible crowding effects of subsidization of private contributions o Non monetary interventions Cardenas and Stranlund (2000): effect of rules and regulations imposed from outside the community on local environmental quality

Non-monetary intervention Does disclosure crowd out cooperation? Peter Martinsson, Clara Villegas

 Previous literature (Bénabou and Tirole 2006; Ariely et al.2009) discuss three broad motivations for individuals to behave pro-socially: o Intrinsic motivation - altruism o Extrinsic motivation – monetary reward o Image motivation – social approval  Bénabou and Tirole (2006) suggest possible crowding effects of disclosure:  “Altering any of the three components of motivation, for instance through the use of extrinsic incentives or a greater publicity given to action, changes the meaning attached to pro-social behavior” Introduction

Introduction - Hypotheses  Investigate crowding effects of disclosure on voluntary contributions to a PG using an experimental approach  Why do we expect an interaction between disclosure and motivations for voluntary cooperation? External interventions Intrinsic motivation Disclosure (non monetary intervention) Image motivations (-) “Good actions become suspected of being motivated by appearances” (+) or (-) by social norms (+): Perceived as supportive (-): Perceived as controlling Total effect = f (crowding effect on intrinsic motivation + crowding effect on image motivation)

Introduction - Literature  Mixed evidence in previous experimental literature: o Rege and Telle (2004): Disclosure crowds- in contributions o Noussair and Tucker (2007): No significant difference between standard and disclosure treatment  Lab experiment – (Linear) Public Goods game – our standard treatment  Experiments are run with students as participants  People are randomly allocated in groups of 4 participants  Each subject receives an endowment of 20 tokens  Subject decides on contribution to the Public good  For each token contributed to the public good each subject in the group receives 0.4 tokens  All decisions are anonymous

Experimental design Out-group disclosure (Contributions and identity announced to all participants in the session) NOYES In-group disclosure (Contributions and identity announced only to group members) NO Treatment 1 Standard PGG without disclosure Treatment 2 PGG with only out-goup disclosure YES Treatment 3 PGG with only in- group disclosure Treatment 4 PGG with both in-group and out-group disclosure  One-shot (no strategic behavior), linear public good game conducted with students in Colombia.  Two sessions per treatment. 24 participants in each session  Randomly allocated to groups of 4 members

Some results  Mean unconditional contribution Out-group disclosure (Contributions and identity announced to all participants in the session) NOYES In-group disclosure (Contributions and identity announced only to group members) NO Treatment 1 Mean= 39.9% Treatment 2 Mean= 43.85% YES Treatment 3 Mean= 43.23% Treatment 4 Mean= 48.13%

Some results  We find that when implementing joint in-group and out- group disclosure: o The proportion of subjects contributing the whole endowment significantly increases compared to in the anonymity treatment o The proportion of non-contributions does not change significantly.

Discussion and conclusions  Significantly higher variance in unconditional contributions under joint disclosure: unconditional contribution may be moved in various ways  Effect of the context of the game in our results.  Groups in our study studies lack any history of interaction which may be crucial for pro-social behaviour o No incentives for reputation building o Reciprocity is not present  Exogenous vs. Endogenous choice of institutions

Monetary intervention Crowding effects of subsidies to voluntary contributions to public goods. An experimental test

Introduction  Are there long-run crowding effects of PES schemes on voluntary conservation? (Field experiment with farmers in Colombia)  More general question to be studied first: How do subsidies affect voluntary cooperation in a PG?  Do we observe a short-run crowding-in/out effect on voluntary contributions?  What would happen if the policy is reversed? (Long run crowding effect)  Gächter et al (2009): one-shot and repeated gift-exchange experiments

Which hypothesis can be drawn from existing theory?  Economics literature- Nyborg and Rege (2003) o Short run: no effect / crowding-in effect o Long run: crowding-in effect.  Psycological literature: o Short run: crowding in o Long run: crowding out

Experimental design Treatment labelPhase 1 (Period 1-10) Phase 2 (Period 11-20) Phase 3 (Period 21-30) NS-NS-NSPG game with No subsidy (NS) PG game with No subsidy (NS) PG game with No subsidy (NS) 12 groups, 4 subjects each (48 subjects) NS-S-NSPG game with No subsidy (NS) PG game with subsidy (S) PG game with No subsidy (NS) 12 groups, 4 subjects each (48 subjects) Q1. Are there short-run and long-run crowding effects when introducing a subsidy to voluntary contributions to Public Goods? First set of experiments: Confounding effects: strategic contributions To avoid strategic motivations: Sequence of one shot PGG with new matching every period.

Experimental design Treatment label Phase 1 (Period 1-10) Phase 2 (Period 11-20) Phase 3 (Period 21-30) NS-NS-NS NS-S-NS Q1. Are there short-run and long-run crowding effects when introducing a subsidy to voluntary contributions to Public Goods? Short run crowding: Long run crowding:

Experimental design Q2. Are there crowding effects under repeated interaction? Second set of experiments: Same experimental design but with fixed groups during the 30 periods. Q3. Does the experience of no-subsidy matter for short and long- run crowding effects? Add one extra-treatment to the first and second set of experiments Treatment label Phase 1 (Period 1-10) Phase 2 (Period 11-20) Phase 3 (Period 21-30) S-NS-NSPG game with subsidy (S) PG game with No subsidy (NS)

Experimental design To be decided: How should we introduce the subsidy into the game? To present it as a subsidy comming from a third agent (problematic) To make the contributions to the PG cheaper Subjects are taxed in the NS treatment and the tax is removed for the S treatment

Thanks

Which hypothesis can we draw from existing theory?  Nyborg and Rege (2003) discuss some models that can explain voluntary contributions and their implications for crowding effects: o Homo Economicus: Short run: subsidies have no effect o Pure altruism: Short run: subsidies have no effect o Impure altruism: Short run: subsidies crowd-in contributions

Which hypothesis can we draw from existing theory?  Nyborg and Rege (2003): o Social norms models Holländer,1990: crowding-in in short run Rege, 2003: crowding-in in both short and long run o Fairness models: crowding-in in short run  Psycological literature: o Short run: crowding in o Long run: crowding out

Introduction - Literature  Mixed evidence in previous literature: o Rege and Telle (2004): Disclosure crowds- in contributions o Noussair and Tucker (2007): No significant difference between standard and disclosure treatment  Disclosure of behavior but not identity o Sell and Wilson (1991): Crowds-in contributions o Croson (2001): multiperiod PGG. No impact on contributions  Field experiment: o Soetevent (2005): Church offers among 30 churches in the Netherlands Crowds-in donation to causes outside the church