can public goods experiments inform policy interpreting.pdf

Can public goods experiments inform policy? Interpreting results in the presence of confused subjects Stephen J. Cotten Paul J. Ferraro Christian A. Vossler INTRODUCTION Public policy is frequently used to induce individuals to contribute to public goods when it is in their private interests to avoid such contributions. To explore how individuals behave in various public goods decision settings and to gain insights into how institutions might be better designed to encourage the provision of public goods, economists employ laboratory experiments. The cornerstone of experimental investigations on the private provision of public goods is the Voluntary Contributions Mechanism (VCM). Understanding behavior in experimental implementations of the Voluntary Contributions Mechanism game is critical for the work of economists with institutional and policy-oriented interests. The standard linear VCM experiment places individuals in a context-free setting where the public good, which is nonrival and nonexcludable in consumption, is simply money. Participants are given an endowment of “tokens” to be divided between a private account and a public account. Contributions to the private account are converted to cash and given to the individual. Contributions to the public account yield a cash return to all group members, including the contributor. If the marginal return from contributing a token to the public account is less than the value of a token kept in the private account, but the sum of the marginal returns to the group is greater than the value of a token kept, the individually rational contribution is zero (i.e., the individual free rides) while the social optimum is realized when everyone contributes their entire endowment to the public account. In single-round VCM experiments where a public good contribution rate of zero is the unique Nash equilibrium, subjects contribute at levels far above this: on average, 40-60 percent of endowments. In rep