Gunning for efficiency with third party enforcement in threshold public goods.
Gee, Laura Katherine.
- When public goods can only be provided when donations cross a minimum threshold, this creates an advantage in that Pareto Efficient outcomes can be Nash Equilibria. Despite this, experiments have shown that groups struggle to coordinate on one of the many efficient equilibria. We apply a mechanism used successfully in continuous public goods games, the Hired Gun Mechanism (Andreoni and Gee in J. P... read moreublic Econ. 96(11-12):1036-1046, 2012), to see if it can successfully get subjects across the threshold. When we use the mechanism to eliminate only inefficient equilibria, without addressing coordination, there is a modest but statistically insignificant improvement with the mechanism. However, when we hone the mechanism to eliminate all but one of the provision-point equilibria, thereby addressing the coordination issue, the mechanism moves all subjects to the desired efficient outcome almost immediately. In fact, after only one round using the hired gun mechanism, all subject are coordinating on the chosen equilibrium. The mechanism can be applied in settings where a group (1) has a plan for public good provision, (2) can measure contributions, (3) can fine members and (4) has an agreed upon standard for expected contributions. In these settings simple punishments, when focused on solving coordination as well as free riding, can greatly improve efficiency.read less
- Andreoni, James, and Laura K. Gee. "Gunning for Efficiency with Third Party Enforcement in Threshold Public Goods." Experimental Economics 18, no. 1 (January 29, 2014): 154-171. doi:10.1007/s10683-014-9392-1.