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Provision and Maintenance of Common Resources with Asymmetric Power

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Provision and Maintenance Title PageProvision and Maintenance.pdfProvision and Maintenance of Common Resources with Asymmetric PowerBrock StoddardIndiana UniversityWylie Hall 307Office Phone Number: 855-9531AbstractThere are examples from the field of groups who pool resources together and designate a leader todistribute the pooled resources. Benefits from cooperation in such groups come in varying forms: monetary,production, and emotional. In this paper I examine experimentally the emotional benefits from group coop-eration. In the lab I also examine how well participants cooperate in environments similar to those observedin the field.JEL Code: C920Committee:Chair: James WalkerMember: Arlington WilliamsMember: Rick Harbaugh11. IntroductionSituations with the collective action problem are often observed in the world. Thecollective action problem is that rational behaviour of an individual, defined in traditionaleconomic and game theoretic terms, leads to suboptimal outcomes from the collective stand-point. Rational behavior in these situations implies individuals should free-ride off groupcooperation. Much experimental research among social scientists has focused on institu-tional arrangements that discourage individual rational behavior by creating incentives thatdevelop cooperation (Isaac and Norton, 2008; Hamman, Weber, Woon, 2010; Cox, Ostrom,Walker, et al., 2009; Baker, Walker, Williams , 2009; Cox, Ostrom, Walker 2011). Environ-ments that yield cooperation have rules that build trust between members. When trust isestablished a group often sustains cooperation. A group without trust likely will not coop-erate.Benefits from cooperation are monetary, emotional, and more efficient production. Emo-tional benefits are comradery, a sense of community, purpose, insurance, and protection. Inspite of these benefits, cooperation is often not achieved. Research indicates that under cer-tain conditions groups can overcome the free-riding problem and successfully cooperate (cite).There are many ways a group can develop trust. For instance, rewarding and sanc-tioning mechanisms increase trust and cooperation (Sefton, Swope, Walker cite). If groupmembers feel like they are being treated fairly, they develop trust. Research identified reci-procity, others should treat me like I treat them, as a measure of fairness (cite).When a group has a leader, the perceived fairness of her policies will impact co-operation. Distributive justice is a philosphical normative principle designed to guide theallocation of the benefits and burdens of economic activity1. Economists examining distribu-1Stanford Encyclopedia of Philosphy1tive justice found . . . using the trust game2. . . a fair leader increases contributions . .. creates an atmosphere to develop comradery and belief in the institution . . . Within agroup, it is difficult for a group member to be completely impartial or objective about fair-ness (Croson and Konow, 2009 ?). Lack of impartiality happens because there are incentivesto cooperate and incentives to free-ride.Adam Smith spoke of an ”impartial spectator” who might have better judgementabout fairness than someone involved in a situation. If the distribution of resources was de-cided by a distirbutor from outside the group who, given full information and paid a salaryindependent of her distribution, might distribute the resources more justly than someonefrom within the group. Game theory and information economics on the other hand say animpartial spectator would not be better because she has reason to care about the distributionof resources due to moral hazard. This will be discussed in more detail later.This project experimentally examines a decision environment where group membersare endowed with resources. They can cooperate by pooling resources to create a group fund.Pooled resources are distributed by a leader who, depending on the treatment condition, iseither within the group or outside the group. Group members cooperate by contributing tothe pool because contributed resources earn a return g. This returns simulates utility fromparticipating in a community. With this data I examine some important questions: Willthese decision environments sustain cooperation? Will cooperation be higher with a distrib-utor outside or within the group? How will levels of cooperation differ in these treatmentsthan in experiments with similar decision environments in the public good, common-poolresource, and distributive justice literatures?2. Motivation: Examples From the Field2Marco Faravelli. How context matters: A survey based experiment on distributive justice. 2007.2Groups in the field implementing economic systems with these decision settings mo-tivated this project. These groups often have religious motivations for implementing such asystem. In the Bible (Acts chapter 5 and 6) a communal-like economic system is introducedwhere church members created a pool of resources. The leaders of the church managedthe pool. Many Christian groups on the American frontier in the 1800’s implemented thisvaguely defined Biblical system3. The Mormon church lead by Joseph Smith and thenBrigham Young implemented this type of system. In Mormon theology a principle calledthe Law of Consecration calls for members to donate all of their time, talents, abilities, andmaterial possessions to the church (Chasing Consecration, Levine). Mormons in the 1800’swere expected to donate all their property to church. An assigned Bishop oversaw the col-lection and distribution of the pool of resources.This implementation of the Law of Consecration was discontinued in the main-stream Mormon church (The church of Jesus Christ of Latter-day Saints or LDS), butis still implemented today by a fundamentalist splinter from the LDS church, the Fun-damentalist Church of Jesus Christ of Latter-Day saints or FLDS. In addition to Chris-tian implementation of this type of economic system, a current Muslim philosopher TariqRamadan has called for a variation of this system by Western Muslims (Reason, Revela-tion, and Economic Conscientious Objection: An Analysis of Tariq Ramadans CollectivistEconomic Thought. Chase Knowles). In her Noble Prize speech at IU Elinor Ostromreferenced nonreligious communal groups in Indiana practicing similar economic systems(http://newsinfo.iu.edu/news/page/normal/13363.html).Public good and CPR experiments have previously only used 1/N distributions. Trustgames allow responders to use distribute rules other


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