Martin Sefton

The Effect of Rewards and Sanctions in Provision of Public Goods

A growing number of field and experimental studies focus on the institutional arrangements by which individuals are able to solve collective action problems. Important in this research is the role of reciprocity and institutions that facilitate cooperation via opportunities for monitoring, sanctioning, and rewarding others. Sanctions represent a cost to both the participant imposing the sanction and the individual receiving the sanction. Rewards represent a zero sum transfer from participants giving to those receiving rewards. We contrast reward and sanction institutions in regard to their impact on cooperation and efficiency in the context of a public goods experiment.

The Long-Run Benefits of Punishment

Experiments have shown that punishment enhances socially beneficial cooperation but that the costs of punishment outweigh the gains from cooperation. This challenges evolutionary models of altruistic cooperation and punishment, which predict that punishment will be beneficial. We compared 10- and 50-period cooperation experiments. With the longer time horizon, punishment is unambiguously beneficial.

The Sequential Prisoner's Dilemma: Evidence on Reciprocation

We investigate how fairness concerns influence individual behaviour in social dilemmas. Using a Sequential Prisoners Dilemma experiment we analyse the extent to which co-operation is conditional on first-mover co-operation, repetition, economic incentives, subject pool (United Kingdom vs. United States) and gender. We find the most important variable influencing co-operation is the first-movers choice, supporting the argument that co-operative behaviour in social dilemmas reflects reciprocation rather than unconditional altruism. However, we also find that cooperation decreases with repetition, and reciprocation falls as its material cost rises.

After you--endogenous sequencing in voluntary contribution games

Abstract We examine contributions to a public good when some donors do not know the true value of the good. If donors in such an environment determine the sequence of moves, two contribution orders may arise as equilibria. Either the uninformed and informed donors contribute simultaneously or the informed contribute prior to the uninformed. Sequential moves result in a larger provision of the public good, because the follower mimics the action of the leader, and in accounting for this response the leader chooses to contribute when it is efficient to do so. An experimental investigation of the game shows that the donors predominantly choose to contribute sequentially, and that the resulting contributions are larger than those of the simultaneous-move game. Although the gain from sequential moves is smaller when the sequence is set exogenously, our results suggest that the involved parties would benefit from having sequential moves imposed upon them.

An experimental study of price dispersion

Abstract We report an experiment examining a simple clearinghouse model that generates price dispersion. According to this model, price dispersion arises because of consumer heterogeneity—some consumers are “informed” and simply buy from the firm offering the lowest price, while the remaining consumers are “captive” and shop based on considerations other than price. In our experiment we observe substantial and persistent price dispersion. We find that, as predicted, an increase in the fraction of informed consumers leads to more competitive pricing for all consumers. We also find, as predicted, that when more firms enter the market, prices to informed consumers become more competitive while prices to captive customers become less competitive. Thus, our experiment provides strong support for the models comparative static predictions about how changes in market structure affect pricing.

Funding Public Goods with Lotteries: Experimental Evidence

Why do individuals participate in charitable gambling activities? We conduct a laboratory investigation of a model that predicts risk-neutral expected utility maximizers will participate in lotteries when they recognize that lotteries are being used to finance public goods. As predicted by the model, we find that public goods provision is higher when financed by lottery proceeds than when financed by voluntary contributions. We also find support for other comparative static predictions of the model. In particular we find that ticket purchases vary with the size of the fixed prize and with the return from the public good: lotteries with large prizes are more effective, and ticket purchases drop dramatically when the public good is not valued by subjects.

When are Nash equillibria self-enforcing?: an experimental analysis

Abstract. We investigate the effect of non-binding pre-play communication in experiments with simple two-player coordination games. We reproduce the results of other studies in which play converges to a Pareto-dominated equilibrium in the absence of communication, and communication moves outcomes in the direction of the Pareto-dominant equilibrium. However, we provide new results which show that the effectiveness of communication is sensitive to the structure of payoffs. Our results support an argument put forward by Aumann: agreements to play a Nash equilibrium are fragile when players have a strict preference over their opponents strategy choice. We also find that informative communication does not necessarily lead to the Pareto-dominant equilibrium.

Who Makes a Good Leader? Cooperativeness, Optimism, and Leading‐By‐Example

We examine the characteristics of effective leaders in a simple leader-follower voluntary contributions game. We focus on two factors: the individual’s cooperativeness and the individual’s beliefs about the cooperativeness of others. We find that groups perform best when led by those who are cooperatively inclined. Partly this reflects a false consensus effect: cooperative leaders are more optimistic than non-cooperators about the cooperativeness of followers. However, cooperative leaders contribute more than non-cooperative leaders even after controlling for optimism. We conclude that differing leader contributions by differing types of leader in large part reflects social motivations.

Reward structures in public good experiments

Abstract We contrast results from a laboratory experiment in voluntary contributions for a public good using two reward structures with interior equilibria. The first induces a set of Nash equilibria, all sharing the same total donations. The second induces a unique dominant-strategy equilibrium. Apparently, donor confusion over the Nash concept and coordination problems explain at most a small portion of the ‘excessive’ giving observed in those previous experiments that use an interior Nash design. Thus, we strengthen the case for interpreting experimental results as consistent with altruistic preferences that are not easily overcome by experimental induction.

Peer Effects in Pro-Social Behavior: Social Norms or Social Preferences?

We compare social preference and social norm based explanations for peer effects in a three-person gift-exchange experiment. In the experiment a principal pays a wage to each of two agents, who then make effort choices sequentially. In our baseline treatment we observe that the second agents effort is influenced by the effort choice of the first agent, even though there are no material spillovers between agents. This peer effect is predicted by the Fehr-Schmidt (1999) model of social preferences. As we show from a norms-elicitation experiment, it is also consistent with social norms compliance. A conditional logit investigation of the explanatory power of payoff inequality and elicited norms finds that the second agents effort is best explained by the social preferences model. In further experiments we find that the peer effects change as predicted by the social preferences model. Again, a conditional logit analysis favors an explanation based on social preferences, rather than social norms. Our results suggest that, in our context, the social preferences model provides a parsimonious explanation for the observed peer effect.