Stuart Mestelman

Heterogeneity and the Voluntary Provision of Public Goods

We investigate the effects of heterogeneity and incomplete information on aggregate contributions to a public good using the voluntary contribution mechanism. The non-linear laboratory environment has three-person groups as partners under varying conditions of information and communication. Bergstrom, Blum and Varian predict that increasing heterogeneity will have no effect on aggregate contributions in a no-communication environment. Ledyard conjectures a positive effect of incomplete information, a negative effect of heterogeneity, and a positive interaction of heterogeneity and incomplete information. We find that incomplete information has a small but significant negative effect. Heterogeneity has a positive effect on aggregate contributions, but its effects interact unexpectedly with communication. In a no-communication environment, heterogeneity in two dimensions (endowment and preferences) increases contributions substantially while heterogeneity in a single dimension (endowment or preferences) has little effect. In the communication environment we find the reverse. We also find a positive interaction between heterogeneity and incomplete information. Thus we reject the Bergstrom, Blume and Varian invariance result and provide mixed evidence on Ledyards conjectures.

The Voluntary Provision of Public Goods under Varying Income Distributions

The T. C. Bergstrom, L. E. Blume, and H. R. Varian (1986) model of voluntary contributions to public goods predicts increases in public good provision as the distribution of income becomes more unequal. This model is tested in the laboratory. Group behavior conforms to the model but individual behavior does not. Individuals with low incomes overcontribute to the public good; individuals with high incomes undercontribute. Coauthors are Stuart Mestelman, Rob Moir, and R. Andrew Muller.

The Impact of Social Value Orientation and Risk Attitudes on Trust and Reciprocity

Prior experimental studies provide evidence that the levels of trust and reciprocity are highly susceptible to individuals’ preferences towards payoffs, prior experience, capacity to learn more about personal characteristics of each other and social distance. The objective of this study is to examine whether social value orientation as developed by Griesinger and Livingstone (1973) and Liebrand (1984) and risk preferences can help to account for the variability of trust and trustworthiness. We use the Berg et al. (1995) investment game to generate indices of trust and reciprocity. Prior to their participation in the investment game, all subjects participated in two other games. One is used to measure their social value orientation (a measure of other regarding behavior) and the second to measure risk attitudes. These variables are introduced as treatments in the analysis of the trust and reciprocity data. In addition to these preference related variables, gender is introduced to capture any differences between men and women which may not be encompassed by value orientation and risk attitudes. The statistical analysis indicates that the social value orientation measure significantly accounts for variation in trust and reciprocity. As well, the level of trust exhibited by an investor significantly affects the reciprocity of the responders and this measure of trust interacts with social value orientation. Individuals who are highly pro-social reciprocate more as the sender’s trust increases, while those who are highly pro-self reciprocate less as the sender’s trust increases. For this sample of participants, the gender variable does not capture any differences in the behavior of men and women that is not already reflected by the differences captured by their value orientations. Risk attitudes do not significantly account for variation in trusting behavior, except for the case where individuals have neither strongly pro-social nor pro-self social value orientations. In this case, more riskseeking individuals are more trusting.

Crowding-out voluntary contributions to public goods

We test the null hypothesis that involuntary transfers for the provision of a public good will completely crowd out voluntary transfers against the warm-glow hypothesis that crowding-out will be incomplete because individuals care about giving. Our design differs from the related design used by Andreoni in considering two levels of the involuntary transfer and a wider range of contribution possibilities, and in mixing groups every period instead of every four periods. We analyse the data with careful attention to boundary effects. We retain the null hypothesis of complete crowding-out in two of three pairwise comparisions, but reject it in favour of incomplete crowding-out in the comparison most closely akin to Andreoni’s design. Thus we confirm the existence of incomplete crowding-out in some environments, but suggest that the warm-glow hypothesis is inadequate in explaining it.

What have we learned from emissions trading experiments

Emissions trading is a form of environmental regulation in which a regulatory body specifies the total allowable discharge of pollutants, divides this cap into individual permits assigned to individual polluters, and allows trading of the resulting permits. Laboratory experiments, in which paid subjects participate in controlled markets, can be used to test both proposals for emission trading and the theories on which they are based. This paper surveys the laboratory research that has investigated the efficiency of emission trading programs, the role of alternative instruments and institutions, the effects of allowing firms to carry inventories of permits, and the extent to which market power can be exercised.

Equity theory and the voluntary provision of public goods

Abstract A model incorporating aspects of a psychological theory of equity is presented as an alternative to the conventional economics model. Equity theory suggests that people may feel distress if they contribute either larger or smaller shares of their incomes to the public good than the average contribution of others, and that people will behave in a way to avoid this distress. The Nash equilibrium prediction for this model is for high-income individuals to undercontribute and for low-income individuals to overcontribute relative to the prediction of the conventional model. The data support the alternative model over the conventional model.

Auditor independence, self-interested behavior and ethics: some experimental evidence

Abstract Our paper presents the results obtained in a laboratory environment in which subjects revealed their beliefs about an uncertain state of the world and then participated in a simple task which required them to report on whether the report of a second party is consistent with the subjects’ beliefs. Because maintaining prior judgements (audit independence) which were in disagreement with the second party’s decision (a potential for a qualified audit opinion) were costly to the subject, a situation was created in which the subject might compromise her beliefs at a price. The results suggest that amoral, self-interested profit-maximizing behavior does not generally characterize the subjects in this experiment. Furthermore, subjects compromise their beliefs less often, i.e., breach independence, the higher their scores on a Defining Issues Test, but more often, the greater the cost of adhering to their beliefs.

Institutions, efficiency and the strategic behaviour of sponsors and bureaus

Abstract The over-production associated with bureaucratic production is examined in a general equilibrium environment in which the bureau and its sponsor behave strategically. Seemingly minor modifications in institutional settings give major differences in Nash equilibrium outcomes. The non-equivalence of institutional settings suggests that over-production or under-production by bureaus can be a result of the institutions governing the decision process as well as the preferences of the bureau for the size of the bureau.

Does ideology matter?: Anecdotal experimental evidence on the voluntary provision of public goods*

The paper reports the results of two controlled-market sessions in which voluntary contributions for the provision of a public good were solicited. The sessions were conducted in an environment comparable to the environment described by Isaac, McCue and Plott (1985) (hereafter, IMP). An important difference in one of the sessions was the use of participants believed a priori to be biased against free riding. Although the sessions do not precisely replicate the work of IMP, general tendencies found in IMP are obtained. When the production of public goods is required over a number of periods, the use of voluntary contributions as a mechanism for determining the level of production will not result in convergence to a socially optimal level of production. Individual rationality tends to dominate collective rationality. Free riding is an issue. The two sessions reported here, like the existing literature, also indicate that free riding is not complete. Finally, the results of one of the sessions are novel in that they are suggestive of the importance of ideology.

Value Orientations, Income and Displacement Effects, and Voluntary Contributions

Identifying the value orientations of subjects participating in market or non-market decisions by having them participate in a ring game may be helpful in understanding the behaviour of these subjects. This experiment presents the results of changes in the centre and the radius of a value orientations ring in an attempt to discover if the measured value orientations exhibit income or displacement effects. Neither significant income effects nor displacement effects are identified. An external validity check with a voluntary contribution game provides evidence that value orientations from rings centred around the origin of the decision-space explain significant portions of voluntary contributions while value orientations from displaced rings do not.