Cooperation in Public Goods Experiments

Abstract

A public good has two distinctive characteristics. Its fundamental characteristic is non-rivalry in consumption. In the words of Samuelson (1954), “each individual’s consumption of such a good leads to no subtraction from any other individual’s consumption of that good.” Another characteristic of a public good is that exclusion from its consumption is difficult. Thus, when it comes to the financing of a public good by private arrangements, individuals face a monetary incentive to free-ride on the contributions of others. According to economic theory, this leads to a Pareto inefficient provision of the public good (e.g., Comes and Sandler 1986). Social choice theory proposes sophisticated collective decision processes to achieve efficient provision of public goods (see Laffont 1987 for a survey). They are often complicated and difficult to apply Falkinger (1996) suggested a simple tax-subsidy scheme. In a series of experiments, Falkinger, Fehr, Gachter, and Winter-Ebmer (2000) show that with this mechanism an almost efficient public goods provision can be achieved. But, although this mechanism is easy to apply, it requires a central authority that can enforce taxes.