Asset Markets and Equilibrium Selection in Public Goods Games with Provision Points: An Experimental Study

Abstract

This paper reports the experimental results of implicit pre-play communication on the equilibrium selection in threshold public goods game experiments. The existence of an asset market in which the right to participate in a public goods game with a provision point is auctioned off among a larger group in a first stage is found to enhance significantly the contribution to the provision of the public good in a subsequent second stage. Though, contributions declined on average in the repeated public goods game when subjects were endowed with the right to play, they increased when subjects purchased the right to play. Once reached the Pareto-dominant equilibrium in the second stage, the auction price at the first stage increased to its upper limit. Confronted with the high entry cost which induced the dissipation of all possible gains from the public goods game single subjects deviated from the equilibrium strategy. Yet, robustness of the full contribution equilibrium is proved since unilateral deviations from it did neither reduce the individual contributions to the provision of the public good in the subsequent periods nor sustained a lower entry price.