Do Opportunity Costs Matter in a Sequential Contribution Public Goods Game?

Abstract

This paper compares behavior of heterogeneous groups with homogeneous groups in public goods production. In heterogeneous groups members differ in their opportunity costs of contribution, while in homogeneous groups, members have the same opportunity costs. Members of three-player groups sequentially make all-or-nothing contributions towards the production of a public good where contribution decisions, payoffs, and opportunity costs of preceding players in the group are known to each group member. We find that heterogeneous groups perform better than homogeneous groups controlling for average opportunity costs at the group level. Our results also indicate that subjects develop an endogenous contribution norm to sustain public goods production where subjects in the first positions, and subjects with relatively low opportunity costs contribute most often.