1. University of Delaware
Can Context Effects Mitigate the Free-Riding Behavior that Causes Negative Externalities? : An Experimental Investigation
Jubo Yan
Kent Messer
University of Delaware
Jordan Suter
Oberlin College

2. INTRODUCTION
Externality - environmental, public health, and other social problems
Not from the direct actions of malign individuals
Arise indirectly from benign people’s self- interested behavior

3. INTRODUCTION
Standard Economic Theory -- a bleak assessment of outcome given voluntary behaviors
Behavioral Economics -- the context may be an effective tool to reduce the pervasiveness of negative externalities.

4. LITERATURE (Andreoni 1995)
Contributing to a public good
Incurring a negative externality on the other group-members
MPCR=1/2=0.5

5. LITERATURE (Andreoni 1995)

6. LITERATURE (Messer et al. 2007)
Public good problem can be improved or even overcome in a laboratory setting
Introducing a variety of real world contexts to the decision setting
Voting: A confidential majority vote between two options (Group Account & Private Lottery)
Cheap Talk: An open discussion with group members up to ten minutes
Status Quo: Money is initially allocated in the Group Account

7. LITERATURE (Messer et al. 2007)
Individual Account: Return Rate 1
Group Account: Return Rate 1.5
MPCR=1.5/7=0.214

8. No Status Quo without Voting and Cheap Talk

9. Status Quo without Voting and Cheap Talk

10. No Status Quo with Voting and Cheap Talk

11. Status Quo with Voting and Cheap Talk

12. EXPERIMENT DESIGN Account A: No externality; Return rate 1.5
Group size: 7
Number of rounds: 20 (predetermined but not announced)
Account A: No externality; Return rate 1.5
Account B: Externality; Return rate 2.5 with Externality

13. EXPERIMENT DESIGN MPCR=1.5/7=0.214
Status Quo: Money initially allocated in Account A
Subjects are given one dollar at the beginning of each round (in Account A or in Account B)
MPCR=1.5/7=0.214

14. EXPECTATION
Cheap Talk and Voting together can eliminate the negative externality problem on some level
The Contribution Rate is lower than Messer et all 2007 according to the conclusion in Andreoni 1995

15. No Status Quo without Voting and Cheap Talk

16. Status Quo without Voting and Cheap Talk

17. No Status Quo with Voting and Cheap Talk

18. Status Quo with Voting and Cheap Talk

19. Positive vs. Negative (No Status Quo)

20. Positive vs. Negative (Status Quo)

21. Positive vs. Negative (No Status Quo with V&C)

22. Positive vs. Negative (Status Quo with V&C)

23. CONCLUSION
Voting and Cheap Talk can largely eliminate the externality problem
The effect of Status Quo is different with V&C and without V&C which also requires future works
The difference between the positive and negative frameworks diminishes from round to round without Voting and Cheap Talk

24. Any Questions or comments?
Thank you!
Any Questions or comments?