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Heterogeneous reactions to heterogeneity in returns from public goods

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Abstract

In many cases individuals benefit differently from the provision of a public good. We study in a laboratory experiment how heterogeneity in returns and uncertainty about the own return affects unconditional and conditional contribution behavior in a linear public goods game. The elicitation of conditional contributions in combination with a within subject design allows us to investigate belief-independent and type-specific reactions to heterogeneity. We find that, on average, heterogeneity in returns decreases unconditional contributions but affects contributions only weakly. Uncertainty in addition to heterogeneity reduces conditional contributions slightly. Individual reactions to heterogeneity differ systematically. Selfish subjects and one third of conditional cooperators do not react to heterogeneity whereas the reactions of the remaining conditional cooperators vary. A substantial part of heterogeneity in reactions can be explained by inequity aversion with respect to different reference groups.

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Notes

  1. See e.g. Ledyard (1995), Anderson (2001), Gächter (2007) or Chaudhuri (2011) for surveys.

  2. Note that we only consider heterogeneity in valuations of public goods. For heterogeneity in productivity see e.g. Tan (2008) or Fellner et al. (2011) and for heterogeneity in valuations of the private good see e.g. Falkinger et al. (2000). For a meta study on determinants of contributions in linear public goods games see Zelmer (2003). Her findings indicate that heterogeneity decreases contributions; strongly for endowment heterogeneity and weakly for heterogeneity in MPCRs.

  3. We do not report results on a seventh decision (a donation decision) made by our subjects which was also elicited and included in the random selection of payoffs.

  4. Averages are rounded to integer numbers, i.e. subjects have to fill in 21 values. The translated instructions in the online appendix provide a screenshot.

  5. A copy of translated instructions can be found in the online appendix.

  6. Note that in our experiment, subjects do not have explicit information about inequity in contributions of the other group members but only condition on the average contribution of their group members. Thus our study focuses on public goods for which people are aware that they may benefit equally or unequally but individual contributions are not observable (e.g. the water quality of a lake or air quality in a city). Results by Cheung (2011) and Wolff (2013) show that if information on individual contributions is known, higher variances in contributions will cause a reduction in conditional contributions.

  7. Note that all members making the same contribution is not plausible in an equilibrium with positive contributions. With equal contributions, it is optimal for individuals with the high MPCR to contribute the same amount as the group average but for individuals with the low MPCR it is optimal to contribute 1/3 of the group average.

  8. Besides, because the threshold for a contribution equalizing payoffs is lower for the player with the high MPCR and higher for those with the low MPCR than the threshold for the situation in which all individuals face the same MPCR of 0.4, we should also observe more people contributing positive amounts in situation CC05 than in CC04, and more in CC04 than in CC03.

  9. Note that the threshold is smaller for a player with the low MPCR than for an individual with the high MPCR because it is less costly for the player with the low MPCR to reduce inequality (he loses 0.7 by contributing a unit and each member of his reference group gains 0.5 whereas a player with the high MPCR loses 0.5 when contributing 1 unit while his reference group members gain only 0.3 each).

  10. Due to the discrete nature of the experiment only a finite set of contribution schedules exists. The logic of the numerical analysis works as follows. First, it can be shown that conditional contributions are monotonically increasing in for both the homogeneous and the heterogeneous case (with and without uncertainty about the own MPCR). Because this is the case, it is sufficient to show in a second step that the increase in \(\vartheta _\mathrm{i} \) increases conditional contributions “step wise” by one unit across the treatment in the order shown such that the weak inequalities CC05 = CC04 = CCun0305 = CC03 always holds.

  11. We do not include the optimal contributions for CCu0305, which are weakly below optimal contribution in CC04, in order not to charge the figure unnecessarily here.

  12. This results holds irrespective of the order in which subjects played the game.

  13. For a more detailed discussion see also Konow (2003), Konow et al. (2009) and Reuben and Riedl (2013).

  14. The exceptions are group averages of 12 and 17.

  15. As a comparison, Fischbacher et al. (2001) find about one third of subjects classified as free riders whereas about 50 % are conditionally cooperative.

  16. Six out of 52 as selfish classified subjects contribute more than zero in UC03, UC05. Among them four who slightly increase contributions in both UC03 and UC05 and two who only increase their contributions in UC05.

  17. The significance can be confirmed with Wilcoxon signed-rank tests.

  18. On theoretical grounds no reaction to heterogeneity in returns may also result from comparisons in contributions instead of final payoffs. However, in the experiment subjects do not observe individual contributions and may thus only match average contributions. It is also plausible that subjects facing first homogeneity and then heterogeneity stick to their behavior in the homogeneous treatment because they are missing information necessary to fulfill their fairness norms in the heterogeneous case (e.g. individual contributions). However, the data do not suggest such an order effect. The probability to be in the group that does not react to heterogeneity is not significantly different (Wilcoxon rank-sum test, \(p\) = 0.413) and even lower when facing homogeneity first (0.184) compared to facing heterogeneity first (0.228).

  19. We cannot separate subjects comparing themselves to subjects with the opposite MPCR from subjects comparing to all others, because the theoretical predictions do not differ qualitatively.

  20. Heterogeneity averse people are actually classified into two different clusters. Although average Diff03 and average Diff05 have the same sign in both clusters, the magnitude is different. We group these two clusters because for both Diff03 and Diff05 are strongly negative. Each cluster presents 8.3 % of the population. In the first cluster, average Diff03 is \(-\)6.94 and average Diff05 is \(-\)6.86 while in the second cluster these values are respectively \(-\)2.97 and \(-\)2.54.

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Acknowledgments

We thank Kate Bendrick, Lisa Bruttel, Gerald Eisenkopf, Pascal Sulser, Verena Utikal and Irenaeus Wolff as well as the participants of the ESA Meeting 2010 in Copenhagen, the THEEM workshop 2010 in Kreuzlingen and the ASFEE Conference 2011 in Fort-de-France as well as two anonymous referees for their helpful comments. Financial support is acknowledged from the Swiss Federal Office of Energy.

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Authors and Affiliations

  1. University of Konstanz and Thurgau Institute of Economics, Post Box 131, 78457 , Constance, Germany

    Urs Fischbacher & Simeon Schudy

  2. INRA, UR1303 ALISS, 94200 , Ivry-sur-Seine, France

    Sabrina Teyssier

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  1. Urs Fischbacher
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  2. Simeon Schudy
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Correspondence to Sabrina Teyssier.

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Fischbacher, U., Schudy, S. & Teyssier, S. Heterogeneous reactions to heterogeneity in returns from public goods. Soc Choice Welf 43, 195–217 (2014). https://doi.org/10.1007/s00355-013-0763-x

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