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Delegation and coordination with multiple threshold public goods: experimental evidence

Abstract

When multiple charities, social programs and community projects simultaneously vie for funding, donors risk mis-coordinating their contributions leading to an inefficient distribution of funding across projects. Community chests and other intermediary organizations facilitate coordination among donors and reduce such risks. To study this, we extend a threshold public goods framework to allow donors to contribute through an intermediary rather than directly to the public goods. Through a series of experiments, we show that the presence of an intermediary increases public good success and subjects’ earnings only when the intermediary is formally committed to direct donations to socially beneficial goods. Without such a restriction, the presence of an intermediary has a negative impact, complicating the donation environment, decreasing contributions and public good success.

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Notes

  1. 1.

    The literature review discusses several recent papers that extend CCV in other directions.

  2. 2.

    It is also related to donors adding conditions to their contributions that require funding to be spent in certain ways. Large donors often add restrictions to an organization’s use of their funds. There is not only a moral obligation for non-profits to honor donor’s wishes, but they are also required by law to do so (Brody 1998; Bac 2002; Goodwin 2005; Atkinson 2008). Under destination rules, NGOs must be careful in choosing how to use donations as, in case they do not comply with the initial intent, donors can take legal action, resulting in substantial monetary and reputation costs for the intermediary.

  3. 3.

    See also Bouma et al. (2018).

  4. 4.

    The marginal per capita return to the collective account equals 0.5 meaning that the marginal return to a subject from successfully contributing to a collective account (namely, once the threshold is reached) is half the return from the private account.

  5. 5.

    More precisely, in every period, the probability of a group member to be assigned to the role of delegate was kept equal to 25% and independent across repetitions.

  6. 6.

    In order to minimize frame effects associated with letter or number labels, the twelve collective accounts in NoDel, Del, and DelRule were labeled using colors: white, yellow, green, red, light blue, blue, gray, violet, brown, pink, black, and orange. Also, subjects in these treatments were told that the order of (but not the label associated with) the boxes of the collective accounts on their screen was randomly determined by the computer in every period.

  7. 7.

    At the same time, we did not want to reshuffle every period in order to preserve the possibility that subjects could effectively use past experience (instead of delegation) to guide their contribution decisions after achieving coordination. Our experimental design was chosen to allow for several high-likelihood-of-mis-coordination periods and other more-stable periods in the same setting.

  8. 8.

    To better analyze the impact of delegation on coordination and contributions in a setting with multiple public goods, the present experimental design departs from the original one introduced by CCV in the number of collective accounts as well as in how heterogeneity is manipulated. First, having 12 (instead of 4 in CCV) collective accounts guarantees that (i) the set containing the efficient alternatives can be entirely changed every four periods and (ii) each alternative is included in the set of efficient accounts for a single 4-period block only. Second, differently from CCV, both the sets of efficient and inefficient collective accounts contain multiple indistinguishable alternatives (more precisely, as mentioned above, 4 efficient and 8 inefficient accounts). Therefore, even under the hypothesis (validated by CCV) that subjects focus their attention on the most efficient collective accounts, they still face the risk of mis-coordinating contributions on different alternatives, as none of the efficient collective accounts in a 4-period block is focal. Therefore, at least in the first of each 4-period block, delegation can help mitigate the coordination problem, still preserving the possibility that groups develop different coordination strategy.

  9. 9.

    http://www.sona-systems.com/default.aspx.

  10. 10.

    Indeed, descriptive statistics suggest that the proportion of subjects contributing nothing to the collective accounts is 31.83% in NoDel, 64.47% in Del, and 56.25% in DelRule.

  11. 11.

    We also detect no difference between Del and DelRule when performing formal tests to compare the interaction terms for the difference between \(Del*Trend\) and \(DelRule*Trend\): \(p=0.671\); for the difference between \(Del*Trend\) and \(DelRule*Trend\): \(p=0.671\); for the difference between \(Del*Coord(t-1)\) and \(DelRule*Coord(t-1)\): \(p=0.355\).

  12. 12.

    Detailed results are available upon request. We thank an anonymous Referee for this interesting observation.

  13. 13.

    The mean contributions to the efficient (inefficient) collective accounts in a period is given by the ratio between the total contributions to the efficient (inefficient) alternatives and the number of efficient (inefficient) collective accounts to which, in that period, the subject allocated strictly positive amounts.

  14. 14.

    The same ranking holds true when focusing on total contributions are taken into consideration. Finally, due to the small magnitude, we do not analyze differences across treatments in the amount contributed to the inefficient public goods.

  15. 15.

    We thank an anonymous Referee for this important observation.

  16. 16.

    See the section ”Where does the money go?” at https://www.unitedway.org/contact-us/faqs.

  17. 17.

    We also investigate whether the intermediary contributes out of her own wallet (namely, net of the delegated resources) more than what, on average, other group members invest (namely, the sum between the resources transferred to the intermediary in the first phase and the amount contributed in the second phase) in the two phases of the experiment. We find that, in both treatments with delegation, the intermediary contributes out of her own wallet less than what invested by any of the other group members, with the difference being substantially bigger in Del than in DelRule. Indeed, over all periods, the intermediary contributes out of her wallet, 3.274 in Del and 24.991 in DelRule, while the investment of any other group member is 21.119 in Del and 31.798 in DelRule. The difference between intermediary’s contribution and the average investment of the other group members is highly significant in Del (\(p<0.001\)) and significant in DelRule (\(p=0.012\)).

  18. 18.

    Namely, the intermediary contributes nothing and entirely expropriates the amounts received from group members.

  19. 19.

    Only in NoDel[1] and Del[1] the coefficient attached to the dummy for period 9 is positive and reaches marginal significance, \(p=0.092\) and \(p=0.073\), respectively.

  20. 20.

    In the online Appendix, we also report results on the delegated amounts and the contributions of the delegate in Del[1] and DelRule[1]. Even with a single collective account, the destination rule increases the delegated amount and on average induces the intermediary to contribute 37.02% more than what is transferred by the group.

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Correspondence to Tommaso Reggiani.

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We thank Diya Elizabeth Abraham, Federica Alberti, Eliane Barker, Pietro Dindo, Milos Fisar, Ben Greiner, Wolfgang Luhan, Valeria Maggian, Thomas Markussen, Louis Putterman, Rainer Michael Rilke, Christian Thöni, Serena Trucchi, Kei Tsutsui, Ansgar Wohlschlegel, participants at the Workshop on Endogenous Institutions in Social Dilemmas in Copenhagen, the ESA World Meeting in Berlin, and seminars in Venice and Portsmouth, for useful discussions and comments. We are especially grateful to Joachim Vosgerau for giving us the opportunity to run the experiment at the Bocconi Experimental Laboratory for the Social Sciences (BELSS, Bocconi University, Milan). Iuliana Iuras provided excellent research assistance during our experimental sessions at BELSS. Cotton is grateful for financial support provided through his position as the Jarislowsky–Deutsch Chair in Economic and Financial Policy at Queen’s University and the Social Sciences and Humanities Research Council of Canada (435-2017-0573). Reggiani is grateful for financial support from the Czech Science Foundation (GACR: GA18-19492S). All errors are ours.

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Corazzini, L., Cotton, C. & Reggiani, T. Delegation and coordination with multiple threshold public goods: experimental evidence. Exp Econ (2019). https://doi.org/10.1007/s10683-019-09639-6

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Keywords

  • Delegation
  • Threshold public goods
  • Laboratory experiment
  • Fundraising

JEL Classification

  • C91
  • C92
  • H40
  • H41
  • L31