UCSD ECON 264 - Dynamic Voluntary Contribution Games (32 pages)

Previewing pages 1, 2, 15, 16, 31, 32 of 32 page document View the full content.
View Full Document

Dynamic Voluntary Contribution Games



Previewing pages 1, 2, 15, 16, 31, 32 of actual document.

View the full content.
View Full Document
View Full Document

Dynamic Voluntary Contribution Games

114 views


Pages:
32
School:
University of California, San Diego
Course:
Econ 264 - Experimental Economics
Experimental Economics Documents
Unformatted text preview:

Giving Little by Little Dynamic Voluntary Contribution Games John Du y Jack Ochs and Lise Vesterlund Department of Economics University of Pittsburgh Pittsburgh PA 15260 This Draft June 2005 Abstract Charitable contributions are frequently made over time Donors are free to contribute whenever they wish and as often as they want and are frequently updated on the level of contributions by others This dynamic structure enables donors to condition their contribution on that of others and as Schelling 1960 suggested may serve to overcome free riding thereby increasing charitable giving Marx and Matthews 2000 build on Schelling s insight and show that multiple contribution rounds may secure a provision level that cannot be achieved in the static one shot setting but only if there is discrete positive payo jump upon completion of the project We examine these two hypotheses experimentally using static and dynamic public good games We find that contributions are indeed higher in the dynamic than in the static game However in contrast to the predictions the increase in contributions in the dynamic game does not appear to depend on the existence of a completion benefit jump or on whether players can condition their decisions on the behavior of other members of their group Keywords Dynamic Public Goods Game Voluntary Contribution Mechanism Information Reciprocity We acknowledge support from the National Science Foundation We thank Scott Kinross for invaluable research assistance 1 1 Introduction Theoretical analysis of voluntary contribution games suggests that free rider problems will hinder the financing of public goods Nevertheless some public goods are in fact financed through voluntary contributions This observation has led to a voluminous experimental literature aimed at understanding the factors that influence the level of contributions observed in voluntary contribution games Surprisingly much of the theoretical and experimental work on voluntary contributions has focused on static as opposed to dynamic game environments In a static game each player makes a single contribution decision and that decision must be made without knowledge of the decisions made by others By contrast in a dynamic game players make decisions in multiple rounds and may condition each decision upon the level of total contributions in the previous round a state variable that is periodically updated There is good reason to think that charitable giving should be viewed as a dynamic rather than a static game Certainly most charities do not require that contributions be made at a single date in time rather most fund drives last for some duration of time and a target goal is set in advance Further charities find it useful to periodically update potential donors on the level of contributions received during the fund drive For instance the United Way is fond of using thermometers showing progress made during a campaign toward the target goal Why might contribution decisions di er in a dynamic setting as opposed to a static one Or equivalently why might behavior be sensitive to there being multiple rather than just one contribution round Schelling 1960 suggested one possibility dynamic environments allow for smaller historycontingent contributions that reduce the cost of free riding Specifically Schelling writes 1960 pp 45 6 Even if the future will bring no recurrence it may be possible to create the equivalence of continuity by dividing the bargaining issue into consecutive parts If each party agrees to send a million dollars to the Red Cross on condition the other does each may be tempted to cheat if the other contributes first and each one s anticipation of the other s cheating will inhibit agreement But if the contribution is divided into consecutive small contributions each can try the other s good faith for a small price Furthermore since each can keep the other on short tether to the finish no one ever need risk more than one small contribu1 tion at a time Finally this change in the incentive structure itself takes most of the risk out of the initial contribution the value of established trust is made obviously visible Marx and Matthews 2000 build on Schelling s insight regarding the importance of history dependent contributions and develop a theory of how agents might complete funding of a public good in a finite horizon game Specifically they show that if agents are payo maximizers the equilibria of the multiple contribution round dynamic finite game will di er from the one round static game only if a discrete benefit jump is realized upon completion of the public good project In particular in the presence of a benefit jump dynamic play may sustain equilibria that complete the public good via history dependent trigger strategies even when no such equilibria exist in the static one round contribution game with the same payo s A discrete completion benefit arises when the full benefits of a project are not experienced until the project is completed For example contributions to the homeless may have some immediate beneficial e ect but a substantial and discrete increase in benefits from contributions may not be achieved until su cient funds have been collected to build a homeless shelter Similarly a completed collection of paintings may result in a larger overall benefit than the sum of the benefits associated with each individual painting Public radio fund raising campaigns that promise to end early if their target is reached before the drive is up provide an endogenous and discrete completion benefit In this paper we report on a laboratory experiment designed to investigate these two theories Specifically we ask whether voluntary contribution decisions di er when the contribution game is dynamic rather than static and if so whether the di erences are owing to the mechanisms suggested by Schelling and Marx and Matthews Consistent with their hypotheses we compare behavior when individuals with a given endowment simultaneously contribute in either one or multiple contribution rounds 1 In the presence of a completion benefit di erential behavior in the dynamic versus static games would be consistent with both Schelling and Marx and Matthews To 1 Thus our study di ers from the experimental literature on voluntary contributions made by partners vs strangers where individuals play repeated static games with the same group in each game or with a new group in each game for a review see Andreoni and Croson 2003 Our


View Full Document

Access the best Study Guides, Lecture Notes and Practice Exams

Loading Unlocking...
Login

Join to view Dynamic Voluntary Contribution Games and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Dynamic Voluntary Contribution Games and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?