Theory and experiments on network games of public goods: inequality aversion and welfare preference

Abstract

In this paper, we investigate social preferences in network games, where the network structure determines whose action affects the payoff of which player. We develop alternative theories that incorporate inequality aversion and welfare preference into the context of dominant-strategy network games, and test their implications in laboratory experiments. When the economic return is relatively low, we observe that subjects contribute more than the amount that would maximize their monetary profit; moreover, subjects at the central network positions contribute more than those at the periphery. These anomalies suggest that subject behavior is mainly driven by the welfare preference and not as much by either inequality aversion or self-interest, regardless of the network structures considered. In a supplemental experiment with an increased economic return, we find that the advantage of social preferences over self-interest in driving individual activities varies with the underlying network architecture. We also estimate the behavioral parameters and interpret the results in relation to the network topology.