Group composition of income types and the absolute-relative framing of public good contributions

Abstract

This paper examines the effect of absolute-relative framing on contributions to a public good. Group members have high and low endowments and the number of high-income members in each group varies between treatments. They make contributions without and with a minimum contribution level. We express the contribution metric either in absolute amount or as a relative proportion of a member's initial endowment. We propose that these institutional designs affect contribution behavior through shifting reference points in decisions. First, as the number of high-type members increases, the average contribution increases, especially among the low-type members in absolute framing. Second, relative framing makes the contribution proportions between high and low types move closer than in absolute framing. Third, the difference in contributions between absolute and relative conditions mostly disappears when the minimum contribution level is introduced. We show that the effects of group members’ endowments, relative framing, and the MCL policy represent the internal, external and the institutional reference point respectively with increasing strength.