John M. Spraggon

Exogenous Targeting Instruments as a Solution to Group Moral Hazards

The ability of four contracts within the general class of exogenous targeting instruments, proposed by Segerson (1988), to induce socially optimal outcomes in a group moral hazard environment is investigated in an experiment based on Nalbantian and Schotter (1987). Both contracts based on the Holmstrom (1982) forcing contract with multiple equilibria, and contracts based on the Segerson study with unique equilibria are tested. My result -- that contracts can be designed that mitigate the moral hazard problem at the aggregate level -- is a significant advance on the result of Nalbantian and Schotter -- that costly monitoring or competitive teams are required to solve the moral hazard problem. It is shown that this result is robust to uncertainty as well as experience. However, none of the contracts insures compliance at the individual level, and as a result hefty fines may be accrued by individuals even when they choose the socially optimal action.

Comparing the Effectiveness of Regulation and Pro‐Social Emotions to Enhance Cooperation: Experimental Evidence from Fishing Communities in Colombia

This paper presents the results from a series of framed field experiments conducted in fishing communities off the Caribbean coast of Colombia. The goal is to investigate the relative effectiveness of exogenous regulatory pressure and pro-social emotions in promoting cooperative behavior in a public goods context. The random public revelation of an individual’s contribution and its consequences for the rest of the group leads to significantly higher public good contributions and social welfare than regulatory pressure, even under regulations that are designed to motivate fully efficient contributions.

Ambient-Based Policy Instruments: The Role of Recommendations and Presentation

We explore the effects of recommended play and the presentation of payoff information on behavior in an ambient-based policy instrument experiment. Specifically, we test the effects of recommended play (via a description of marginal decision making) and a payoff table on the behavior of individuals facing an ambient-based policy instrument. We find that recommended play and the presentation of a payoff table increases the use of the socially optimal strategy, thereby increasing efficiency. These results suggest that providing decision makers with a richer description of the decision making environment significantly reduces decision error, significantly improving the efficiency of ambient-based policy instruments.

A Clear and Present Minority: Heterogeneity in the Source of Endowments and the Provision of Public Goods

We conduct public goods experiments in which participant groups are heterogeneous in regards to the source of their endowments. We find that this dimension of heterogeneity significantly reduces contributions to the public good, yielding strong support for the Nash prediction of minimal contributions. These minimal contributions arise in environments in which there exists a clear minority in terms of source of endowments. We discuss these results in light of current research on the influence of heterogeneous populations on public goods provision and redistributive policies.

Individual Decision Making in a Negative Externality Experiment

The experimental treatments analysed in this paper are simple in that there is a unique Nash equilibrium resulting in each player having a dominant strategy. However, the data show quite clearly that subjects do not always choose this strategy. In fact, when this dominant strategy is not a “focal” outcome it does not even describe the average decision adequately. It is shown that average individual decisions are best described by a decision error model based on a censored distribution as opposed to the truncated regression model which is typically used in similar studies. Moreover it is shown that in the treatments where the dominant strategy is not “focal” dynamics are important with average subject decisions initially corresponding to the “focal” outcome and then adjusting towards the Nash prediction. Overall, 66.7% of subjects are consistent with Payoff Maximization, 27.8% are consistent with an alternate preference maximization and 5.6% are random.

Imperfect Enforcement of Emissions Trading and Industry Welfare: A Laboratory Investigation

This paper uses laboratory experiments to investigate the performance of emission permit markets when compliance is imperfectly enforced. In particular we examine deviations in observed aggregate payoffs and expected penalties from those derived from a model of risk-neutral payoff-maximizing firms. We find that the experimental emissions markets were reasonably efficient at allocating individual emission control choices despite imperfect enforcement and significant noncompliance. However, violations and expected penalties were lower than predicted when these are predicted to be high, but were about the same as predicted values when these values were predicted to be low. Thus, although a standard model of compliance with emissions trading programs tends to predict significantly higher violations than we observe when subjects have strong incentives to violate their emissions permits, individual emissions control responsibilities are distributed among firms as predicted.

The impact of information and cost heterogeneity on firm behaviour under an ambient tax/subsidy instrument

This study investigates whether the information individuals have about the number of other polluters and their payoffs affects how they make their decisions under an ambient pollution instrument. A number of papers show that although these instruments are able to induce groups to the target outcome, they are not able to induce individuals to make socially optimal decisions in a number of different controlled laboratory experiments. The results show that reducing information does not reduce the ability of ambient pollution instruments to induce groups to the optimal level of emissions. However, particularly with less information, this masks inefficiencies which are due to non-optimal decision making. We conclude with support for the contention that these instruments may only be useful in specific situations with homogeneous polluters who have good information about each other.

Instrumenting Beliefs in Threshold Public Goods.

Understanding the causal impact of beliefs on contributions in Threshold Public Goods (TPGs) is particularly important since the social optimum can be supported as a Nash Equilibrium and best-response contributions are a function of beliefs. Unfortunately, investigations of the impact of beliefs on behavior are plagued with endogeneity concerns. We create a set of instruments by cleanly and exogenously manipulating beliefs without deception. Tests indicate that the instruments are valid and relevant. Perhaps surprisingly, we fail to find evidence that beliefs are endogenous in either the one-shot or repeated-decision settings. TPG allocations are determined by a base contribution and beliefs in a one shot-setting. In the repeated-decision environment, once we instrument for first-round allocations, we find that second-round allocations are driven equally by beliefs and history. Moreover, we find that failing to instrument prior decisions overstates their importance.

Exogenous Targeting Instruments Under Differing Information Conditions

This paper tests the ability of an exogenous targeting instrument to induce compliance when the principal cannot observe the actions of individual agents. A number of papers show that although these instruments are able to induce groups to the target outcome, they are not able to induce individuals to make socially optimal decisions in a number of different controlled laboratory experiments. This study investigates whether the information individuals have about others’ payoffs affects how they make their decisions in this environment. Ledyard (1995) suggests that when subjects have less information in public goods experiments they are more likely to choose the Nash equilibrium decision. However, as he points out, this effect differs between groups with homogeneous and heterogeneous payoff functions. The results show that reducing information reduces efficiency although there are no significant effects on the absolute level of group decisions at the aggregate level. At the individual level, reducing the information players have complicates the environment resulting in subjects choosing either lower decision numbers or more randomly. Moreover, these effects seem to be more serious for subjects whose Nash decisions are on the boundary of the decision space.