R. Mark Isaac

Group size and the voluntary provision of public goods: experimental evidence utilizing large groups

Abstract New experimental evidence extending the investigation of free-riding behavior in public goods provision is presented. Procedures are developed to deal with the logistical problems inherent in experiments involving many subjects. Data from Voluntary Contribution Mechanism experiments are reported utilizing group sizes of 4, 10, 40 and 100. THese experiments provide replicable results that contradict the widely held view that a groups ability to provide the optimal level of a pure public good is inversely related to group size. On the contrary, groups of size 40 and 100 provided the public good more efficiently than groups of size 4 and 10. Several possible alternative explanations are discussed.

Divergent evidence on free riding: An experimental examination of possible explanations

Summary, conclusions and extensionsThe most important single observation from this research is the similarity between our wide range of results and the multitude of seemingly divergent conclusions about free riding from previous experimental results. Even when defined in the restrictive manner of this paper, free riding is neither absolutely all pervasive nor always nonexistent. This ‘intermediate’ result is not the same as a general theory which states that the predictable result of public goods provision processes is always weak free riding. The extremes of strong free riding and near-Lindahl optimal behavior can and do occur.These experiments further demonstrate that this diversity of outcome need not be attributed to inexplicable randomness. At least for the case of the voluntary contribution mechanism, there are identifiable factors which make free riding more or less likely to occur. Two such factors have been identified here: (i) the replication environment and (ii) per capita marginal return. This latter parameter can be related to although it is not equivalent to group size.This research is not intended to ‘model’ a precise quantitative prediction about free riding. Having identified, in a general manner, these effects, the groundwork is set for many interesting questions in future research:1)Although the qualitative results more often suggest that ‘free riding’ behavior increases with experience, there are no statistically supported conclusions. A design focusing on the factor of experience could reveal whether this effect is sustained under more extensive replication.2)The influence of marginal per capita return is striking. Why is there a difference when zero contribution is a single period dominant strategy for either level (.3 or .75)? How extensive is the interaction of replication and marginal per capita return? We are currently conducting a new set of experiments focusing upon these issues.3)Given the power of the marginal per capita return, what happens in situations in which this parameter varies, as in a quadratic return function?4)Why did some individuals contribute positive amounts even in the 10th period when the learning and multiperiod gaming aspects were presumably of minimal effect? We conjecture that this represents a core of people for whom utility functions are not completely selfish or who otherwise wish to believe in ‘good guy’ fashion. However, it is possible that some individuals were still learning their single period dominant strategy or did not correctly notice the presence of a truly single period decision environment. In any case, it appears that marginal per capita return again plays a role.5)With the group production technology held constant, increasing group size (with a concomitant decrease in marginal per capita return) has the expected effect of increasing ‘free riding’ type behavior. Standardizing for marginal per capita return, the effect of group size becomes ambiguous, and shows evidence of reversing. This aspect of group size effects is another area for future research. Our ongoing research will also look at this question.6)What can be said about economies which lack condition D*? If individuals have no dominant strategy, the very concept of ‘free riding’ becomes poorly defined. Definitions and predictions must explicitly state what assumptions about expectations and what solution concepts are being employed. In summary, we find that there is no successful general theory which states that all individuals always free ride a lot, always free ride a little, or never free ride. Under the appropriate circumstances, we find people who will do any or all of the above. This research gives some guidelines as to why and when free riding can be expected. Further work in both theory and experiments may be able to tell even more.

Public Goods Provision in an Experimental Environment

[Introduction] The problem of public goods provision has been central to many areas of economics. The traditional economic models, resting on assumptions about nonexcludability and single-period behavior, led directly to a prediction that social decision processes which rely upon voluntary individual payment for the provision of public goods cannot work [see, for example, Feldman ( 1980)]. According to such models people will not voluntarily pay. Because the profit incentive cannot operate naturally to induce supply in an ordinary market setting, public goods serve as a classic model of market failure and exist as the foundation for many modern theories of government.

The assurance problem in a laboratory market

In the most general terms, a public good exhibits the characteristic of nonexcludability; its benefits are available both to those who help to provide it and those who do not. Two other important features of the public goods provision problem are (i) the mechanism or institution for providing the good and (ii) the incentive structure for potential providers. Among the most familiar institutions is the voluntary contributions mechanism (VCM) combined with an incentive structure such that, for a single period, low levels of contribution are a dominant strategy equilibrium, while some higher level of provision is Pareto-superior. There has been a considerable amount of experimental research on such an environment (see Isaac and Walker, 1987a, for a survey). The existence of such a dominant strategy equilibrium, however, is not the only potential source of problems for the VCM. In particular, under alternative environments a potential provider can have an incentive to contribute if, and only if, he or she has a credible guarantee that others will also contribute. Absent such a guarantee, the provider may withhold. An environment exhibiting these incentives but without such a guarantee is sometimes said to exhibit the assurance problem (see Schmidtz, 1987).

Information and conspiracy in sealed bid auctions

Abstract This paper examines the allocative properties of the sealed bid institution when different aspects of the available information to bidders are considered. Specifically, we examine: (a) the effect on price determination in repeated sealed bid auctions of post auction revelation of losing bids, and (b) the effect on price determination when conspiratorial discussions are allowed.

The effects of market organization on conspiracies in restraint of trade

Abstract Mindful of the market structure-conduct-performance paradigm fundamental to industrial organization research, this paper uses laboratory experimental techniques to study the impact of conspiratorial opportunities on market performance. We compare ‘posted-offer’ markets where sellers (but not buyers) are all conspiratorial opportunities with observations from three control groups: (1) posted-offer markets without conspiratorial opportunities, (2) ‘double-auction’ markets with conspiratorial opportunities and (3) posted-offer markets with true single-seller monopolists. The basic conclusions generated by our experimental design are: (1) seller conspiracies in posted-offer markets tend to raise prices (but not profits) relative to similarly organized markets without conspiracies, (2) posted-offer conspiracies tend to generate higher prices (but not profits) than double-auction conspiracies, and (3) posted-offer monopolies tend to generate higher profits (but not prices) then posted-offer conspiracies.

In Search of Predatory Pricing

Can predatory pricing be reproduced in a laboratory environment? We report research motivated by this objective. We began with conditions that, based on the literature, appeared to combine the features this literature has suggested are favorable to the emergence of predation. Next we operationalized what was meant by predatory pricing in our design in order to compare prices with predictions from alternative theories. Of 10 experiments, none evidenced predatory behavior; most supported the dominant firm theory. The second series of experiments addresses remedies for predation and finds that the effect is to increase prices and reduce efficiency.

Heterogenous demand for public goods: Behavior in the voluntary contributions mechanism

Numerous laboratory experiments have investigated the performance of several processes for providing public goods through voluntary contributions. This research has been able to identify features of the institution or environment which are reliably likely to produce outcomes “close” to the free riding outcome or “substantially” greater than the pessimistic prediction of standard models. One such feature is the “marginal per-capita return” (MPCR) from the public good. Various authors have altered MPCR between groups or for an entire group at the same time. The experiments reported here address a different question, “What would happen if, within a group, some persons faced a ‘high’ MPCR while others faced a ‘low’ MPCR?”

Nash as an Organizing Principle in the Voluntary Provision of Public Goods: Experimental Evidence

Experiments are reported that add to the growing literature on the voluntary provision of public goods. Information conditions are manipulated to address whether early findings of above-equilibrium contributions to a public good are a result of complete information regarding the symmetry of the game. No significant information effect was found. Further, by examining designs with an interior Nash equilibrium, this research suggests that the non-zero contributions observed in the previous dominant strategy environments, where the prediction was a zero level of provision of the public good, were not simply transitional errors as the system converged to a boundary equilibrium.

The opportunity for conspiracy in restraint of trade: An experimental study

A study is a limited exploration into the relationship between the opportunity for conspiracy in restraint of trade and the resulting market performance. Laboratory experimental methods are applied to separate competing theories. The competitive model predicts well relative to cartel models. Nevertheless, when measurements are taken relative to the performance of markets where conspiracies are not possible, the effects of attempted conspiracies can be determined.