1. 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)

2. Public Good  Voluntary (and unmonitored) contribution  Nonexcludability in consumption  Pure: Nonrivalry in consumption; Impure Public Good: Rivalry in consumption (crowding or congestion effect)

3. 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:

4. An Example  Individual endowment is $5 and 4 individuals in a group  Invest in Private and Public exchanges: $5 – m i, m i  i’s returns from Private and Public exchanges are:  Individual’s utility function: Impure Public Good

5. What are the interesting dependent and independent variables ?

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

7. The Central Hypotheses  Strong Free-Rider Hypothesis:  If, Pr = 100% and  Weak Free-Rider Hypothesis  If

8. List of Independent Variables  Group size, n  i’s return from public exchange,  Provision Point, C  Distribution of initial resources,  Stake size  Experience  Ratio of number of private versus public exchanges

9. Marwell and Ames (1979)  Group size, n (4 or 80)  i’s return from public exchange, (same S i or S B /S G =2.5 and % of Blue = 25%) (Distribution of Interests)  Distribution of initial resources, (same or Blue has 45% and Green has 55%)  2 (H vs. S) x 2(E vs. U) x 2(E vs. U)

10. Initial Resources  Z i = 225 tokens per person for equal resource case (or average initial resource for unequal resource case)  Return from each token invested in private exchange is worth one cent.

11. The choice of

12. Problems with the Design  Deception (honesty is a public good!)  Multiple Nash equilibria

13. Hypotheses  Hypothesis 1: Free-rider Hypothesis (Game Theory = Sociology Theory)  Strong Free Rider  Weak Free Rider  Hypothesis 2: Differences in Resources and Interests (Game Theory = Sociology Theory)  Small groups with unequal interest (SUE and SUU) contain a person with V i > C.  If V i > C: SUE and SUU groups will therefore have higher levels of investment in the group exchange than other groups.  V i and Z i > C: Only SUU groups will invest substantially in group exchange.  Hypothesis 3: Group Size (Game Theory and Sociology Theory have different predictions)  Group size: Public good is more likely to be provided in a small group due to perceptibility

14. Average Investment in Group Exchange

15. Tests of Hypothesis 1 Z i = 225

16. Test of Hypotheses 2 and 3

17. Individual Behavior

18. Observations  Small groups (SUE) and SUU):  75% of high-interest subjects contribute all, or nearly all, of their tokens  Low-interest subjects tend to invest in much the same way as the members of all other groups (“The weak did not exploit the strong”).  Large groups (LUU and LUE):  The major difference between large and small groups occurs in the behaviors of high-interest members of LUU groups. 87% of high-interest LUU members contribute half or less of their available funds.  It appears that the high-interest and high-resource subjects realized their inability to control the outcome unilaterally and behaved like most other subjects.

19. Definition of Fairness and Investment

20. Concern with Fairness and Investment

21. Summary