PublicGoodsLecture2

PublicGoodsLecture2 - Public Goods: Outline Definition...

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1 Public Goods: Outline Definition Optimal provision: the Lindahl-Samuelson condition Public goods games; the free rider problem Public provision and information revelation Voluntary provision and charitable fundraising Public provision through the political process
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2 Cooperation in Public Goods Games We know that the dominant strategy equilibrium is for 0 tokens to be handed in, but: Typical result in laboratory experiments: 40-60% of tokens are handed in Exception: according to one study (Marwell and Ames, 1981) Economics graduate students hand in only about 20% of tokens
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3 Cooperation in Public Goods Games Is this consistent with everyday experience?
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4 Voluntary Provision of Public Goods What explains this relatively high level of voluntary provision of public goods? e.g. why do people contribute to charity? On the other hand, voluntary provision in public goods games is generally below the socially optimal level how can people be encouraged to contribute more to charity?
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5 Proposals to Encourage Higher Levels of Charitable Giving Cooter and Broughman (2005): argue that the ratio of contributions to income for most US households is low Propose a voluntary “donation registry” to publicize this ratio for each household
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8 Theories of Voluntary Provision Confusion Pure altruism Impure altruism (“warm-glow”) Wealth signaling Negative reciprocity
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9 Confusion Argument: many of the subjects do not understand the instructions or the nature of the game Even if this were true, is this likely to be the case outside the laboratory?
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10 Confusion Houser and Kurzban (2002) ran a variant of the public goods game where All but one of the players was a computer The computers’ choices were generated randomly The human subject was aware that all the other players were computers and that their choices were generated randomly
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11 Confusion Result: Cooperation was about 50% lower The authors interpret this as evidence that confusion accounts for about half of cooperation in public goods experiments
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12 Pure Altruism Assumes that people care directly about the other players’ payoffs But, note that the experimental results do not involve subjects handing in all their tokens
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13 Pure Altruism If charitable giving is motivated by pure altruism, an empirical implication would be that: Government provision of the public good would reduce (“crowd out”) private contributions e.g. if you were planning to donate $100 to public radio, then, if the govt provides $80, you will reduce your donation to $20
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14 Pure Altruism and Crowd-Out Evidence: Kingma (1989): used variation in the amounts that govts contribute to NPR stations in different cities Result: A $1 increase in govt spending → reduction in private donations by 13.5 cents
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This note was uploaded on 04/08/2008 for the course ECON 253 taught by Professor Damika during the Spring '08 term at UConn.

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PublicGoodsLecture2 - Public Goods: Outline Definition...

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