Common fate motivates cooperation: The influence of risks on contributions to public goods

Abstract

In order to study whether common fate induced by shared risk can promote cooperation, I introduce two types of risks into a public goods game: risk that is common among all group members (the COM treatment), and risk that is independent across individuals (the IND treatment). In both treatments, zero contributions is the only equilibrium. In contrast to the equilibrium analysis, contributions to the public goods in the experiment approach zero under the independent risk but remain at high levels when the common risk is present. Analysis of the data reveals that different reactions to beliefs are fundamental to this treatment effect. While beliefs and contributions in the first periods, as well as the belief formation processes, are similar across treatments, subjects in the IND treatment are significantly less cooperative than those in the COM treatment with the same beliefs. A large variation in group contributions is observed in the COM treatment. Further analysis shows that initial beliefs can explain most of the variation in the long-run contribution level, implying the importance of beliefs in shaping the players’ experience and establishing group norms.