Can Context Effects Mitigate the Free-Riding Behavior that Causes Negative Externalities? : An Experimental Investigation

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Can Context Effects Mitigate the Free-Riding
Behavior that Causes Negative Externalities? An
Experimental Investigation

• Jubo Yan
• Kent Messer
• University of Delaware
• Jordan Suter
• Oberlin College

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INTRODUCTION

• Externality - environmental, public health, and
  other social problems
• Not from the direct actions of malign individuals
• Arise indirectly from benign peoples
  self-interested behavior

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INTRODUCTION

• Standard Economic Theory -- a bleak assessment of
  outcome given voluntary behaviors
• Behavioral Economics -- the context may be an
  effective tool to reduce the pervasiveness of
  negative externalities.

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LITERATURE (Andreoni 1995)

• Contributing to a public good
• Incurring a negative externality on the other
  group-members
• MPCR1/20.5

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LITERATURE (Andreoni 1995)
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LITERATURE (Messer et al. 2007)

• Public good problem can be improved or even
  overcome in a laboratory setting
• Introducing a variety of real world contexts to
  the decision setting
• Voting A confidential majority vote between two
  options (Group Account Private Lottery)
• Cheap Talk An open discussion with group members
  up to ten minutes
• Status Quo Money is initially allocated in the
  Group Account

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LITERATURE (Messer et al. 2007)

• Individual Account Return Rate 1
• Group Account Return Rate 1.5
• MPCR1.5/70.214

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No Status Quo without Voting and Cheap Talk
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Status Quo without Voting and Cheap Talk
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No Status Quo with Voting and Cheap Talk
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Status Quo with Voting and Cheap Talk
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EXPERIMENT DESIGN

• Group size 7
• Number of rounds 20 (predetermined but not
  announced)
• Account A No externality Return rate 1.5
• Account B Externality Return rate 2.5 with
  Externality

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EXPERIMENT DESIGN

• Status Quo Money initially allocated in Account
  A
• Subjects are given one dollar at the beginning of
  each round (in Account A or in Account B)
• MPCR1.5/70.214

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EXPECTATION

• Cheap Talk and Voting together can eliminate the
  negative externality problem on some level
• The Contribution Rate is lower than Messer et all
  2007 according to the conclusion in Andreoni 1995

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No Status Quo without Voting and Cheap Talk
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Status Quo without Voting and Cheap Talk
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No Status Quo with Voting and Cheap Talk
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Status Quo with Voting and Cheap Talk
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Positive vs. Negative (No Status Quo)
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Positive vs. Negative (Status Quo)
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Positive vs. Negative (No Status Quo with VC)
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Positive vs. Negative (Status Quo with VC)
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CONCLUSION

• Voting and Cheap Talk can largely eliminate the
  externality problem
• The effect of Status Quo is different with VC
  and without VC which also requires future works
• The difference between the positive and negative
  frameworks diminishes from round to round without
  Voting and Cheap Talk

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• Thank you!
• Any Questions or comments?

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