20090914-Public_Goods - PAM 2300: Public Goods Bill Schulze...

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Unformatted text preview: PAM 2300: Public Goods Bill Schulze AEM Private versus Public Goods Private Good (Apple): 1. Excludable (Only owner can use it) 2. Rival (If you consume it no one else can) Public Good (Street Sign): 1. Non-Excludable (All can use it) 2. Non-Rival (Your looking at it does not wear it out) Private Good Markets: Private Markets are efficient. Units almost always sold to the persons with the highest value. Inefficient sellers are put out of business. Think of an auction for paintings. The person who has the highest value for each painting usually gets it. Example: English Auction (3 Bidders with values of $200, $500, and $600) Voluntary Contributions Experiment (Easy Numbers) All money put into group fund multiplied by 1.5 Money divided equally You get $1 on each round You either keep $1 or give to group fund Should you keep or give? Payoff Matrix Keep Give Keep ($1, $1) ($1.75, $.75) Give ($.75, $1.75) ($1.50, $1.50) A B Payoff (A, B) Dominant strategy is to keep Your Experiment (Thanks to John Taber) Play 8 Rounds Cheap Talk Discussion Play Again Results: Section 1: Wednesday, 2pm Section 2: Wednesday, 3pm Section 3: Thursday, 2pm Section 4: Thursday, 3pm Section 5: Thursday, 4pm Section 6: Thursday, 6pm Section 7: Thursday, 7pm Section 8: Friday, 2pm Section 9: Friday, 3pm What can we do? 1. Economics: Taxes and fines (IRS) People cheat less than economic theory predicts! Low Probabilities of detection work well Social Norms 2. Economics: Provision Point Mechanism No public good provided unless threshold is reached (Provision point) Money Back Guarantee 3. Psychology: Status Quo Bias and Social Norms in the Voluntary Contributions Mechanism Psychology as a Tool in Mechanism Design : What is Automatic Donation? Many charitable organizations use Automatic Donation as a method of contribution....
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20090914-Public_Goods - PAM 2300: Public Goods Bill Schulze...

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