Public goods game: a group of people play a public game which is based on voluntary contribution mechanism (VCM). VCM is the game in which subjects have a certain amount of endowment (20$ in this study) and decide to allocate the endowment between public account and private account. The contribution to public goods is multiply with marginal per capita return. Marginal per capita return is the ratio of benefit to cost if people decide to give 1$ from private account to public account. An outcome of each player is:
In which ei is the endowment of each subject
ci is the contribution to public account
αi is the marginal per capita return.
A. Variables
IV# 1: Stranger & Partner treatment (They are subject variables and between-subject design)
Level 1: Stranger treatment: subjects are paired with different players in every round
Level 2: Partner treatment: subjects are matched with the same players in every round
IV# 1: Punishment (They are manipulated variables and between-subject design)
Level 1: Punishment treatment: a subject punishes his partner (who he is paired with) 3$ at a cost of 1$ if he feels that his partner does not contribute much to public account.
Measure: average punishment points
Level 2: No punishment treatment: subjects cannot punish his partner (no punishment point)
Dependent variable: contribution to public goods (ci)
Measure: contribution to public goods is the amount of money in which subjects decide to contribute to public account out of initial endowment (20$)
B. Hypothesis
Main effect: I hypothesize there will be a main impact of the match between Stranger and Partner treatment on the contribution to pubic goods. Furthermore, there will be a significant effect of punishment condition on the contribution. I expect that subjects in Stranger treatment contribute less to public goods than those in Partner treatment because they subjects in Partner treatment have a tendency to corporate with each other and therefore, they contribute more. Participants in punishment treatment contributes more to publish goods than those in treatment without punishment because if they contribute very little in Punishment treatment, they may be punished and their outcome will be decreased.
Interaction: I hypothesize that there will be a strong effect between dependent variables. Those who are paired with the same player in punishment condition tend to significantly contribute more to public goods than those who are matched with a strange player in a no punishment condition. Furthermore, in Stranger treatment, subjects tend to contribute more under the condition of punishment than those in Partner treatment and no punishment condition. The reason is that subjects corporate with their peers to contribute more if they are matched with the same player and the fear of being punished forces them to contribute more to public account.
C. Background
Abstract 1:
Kumakawa, T. (2013). Social Rewards and Sanctions: A Voluntary Contribution. Journal of Neuroscience, Psychology, and Economics, Vol. 6, No. 3, 186-200. doi:org/10.1037/npe0000011
Background: this study investigates the effect of social rewards and sanctions on cooperation by examining a voluntary contribution mechanism used in conjunction with ex post communication. The experiment consists of two stages. In the first stage, paired subjects play a standard public-good game; in the second, each of them evaluates his or her partner’s contribution in the first stage and sends a free-form written message to him or her. The experimental results show that the mere presence of an opportunity to praise or blame is not enough to promote cooperation. However, once subjects actually experience being blamed, they contribute significantly more in the following round. When disapproval is expressed in the subject’s own words, unlike in previous studies, social sanctions were found to have a stronger impact on cooperation. The experience of being praised, in contrast, does not have such an effect. These results suggest that subjects may be more sensitive to the disutility of being blamed than to the utility of being praised.
The abstract is written from a research article. The research examines the effect of social sanction and reward on the decision to contribute to public goods (Kumakawa, 2013). This paper is relevant to my study because I am interested in testing the effect of the presence of punishment condition on the contribution to public goods. The research article has 35 references which includes this paper:
Houser, D., Xiao, E., McCabe, K., & Smith, V. (2008). When punishment fails: Research on sanctions, intentions and non-cooperation. Games and Economic Behavior, 62, 509–532. doi:10.1016/j.geb.2007.05.001
Abstract 2:
Greene, J. B. (1996). Determinants of Insensitivity to Quantity in Valuation of Public Goods: Contribution, Warm Glow, Budget Constraints, Availability, and Prominence. Journal of Experimental Psychology, Vol. 2 (2), 107-125. doi: 10.1037/1076-898X.2.2.107
Background: insensitivity to quantity in valuation appears in 3 ways: embedding (when willingness to pay for a good is smaller if assessed after a superordinate good), insensitivity to numerical quantity, and adding up (when willingness to pay for 2 goods is less than inferred from willingness to pay for each good alone). Results of 11 experiments on these effects are generally inconsistent with 3 accounts: People think of the task as a contribution, they get a warm glow from participation, and they have budget constraints on expenditures for certain goods. The results support an explanation in terms of prominence of the type of good as opposed to its quantity. In addition, 1 study supports availability of only the good evaluated rather than other goods of the same type. These findings support the critics of contingent valuation, but they suggest that some of the methods of decision analysis can improve the elicitation of economic values .
The abstract is written from a research article. The research investigates different reasons for different levels of contribution to public goods, including warm glow, corporation and valuation of public goods. This study is related to my paper because I also investigate the motivation for people to contribute to public goods.
The research article has 35 references which includes this paper:
Andreoni, J. (1990). Impure altruism and donations to public goods: A theory of warm-glow giving. Economic Journal, 100, 464-477.
D. Method
Participants: A group of 80 students are participated in this research. First year students are more preferable because all of them do not have any prior knowledge about game theory and voluntary contribution mechanism. As mentioned above, VCM is the game in which subjects have a certain amount of endowment (20$ in this study) and decide to allocate 20$ between public account and private account. Undergraduate students in Psychology Department in American Psychology Association are recruited to participate in the experiment. Posters are used to advertise this experiment and emails are also sent to invite more students participating in the research. The experiment is conducted in laboratory of American Psychology Association. To make money incentive, subjects receive a fixed amount of 10$ and they can get additional money based on their performance in the experiment.
Subjects play 10 repeated game. Computers will randomly locate students so that they are not able communicate or know a player they interact with. There are two treatments and 10 students are in each. In Stranger treatment, subjects are told that they are matched with different players after every round. It means during the Stranger treatment, no player rematches with others. In Partner treatment, subjects are told that they play with the same player during 10 rounds.
Initially, the instruction sheet is delivered to participants to assure that they understand the way game works. This is a public good game based on voluntary contribution mechanism. Each subject receives an endowment of 20$. They have to allocate the amount between contributing to public goods and keeping in private account. Contribution to public goods benefits each member in the group by marginal per capital return. It means subjects may be better off if they corporate to contribute. Subjects have 2 minutes to make a decision. After every round, they are informed about the amount that their partners contribute to public goods. After that they continue the game with the same structure until they finish 10 rounds. In Punishment treatment, players can decide to sanction other players (3$) at an expense to themselves (1$); however, the outcome of punished subject could not be less than the amount of money they have. At the end of the game, subjects are informed about their total outcome and they are paid according to what they earn during the experiment.
F. Discussion
The table above confirm the hypothesis that there is a significant effect of informal sanction on the contribution to public goods when subjects are matched with stranger and partner.
The result shows that the presence of punishment opportunity leads to a significant increase in the contribution in Partner treatment. On average, subjects contribute 85% of their endowment. However, in the absence of sanction, the contribution to public goods decreases drastically to only 35% of initial endowment. On the contrary, in the no-punishment condition of Stranger treatment, the contribution of participants is nearly close to free-riding or very small. In Stranger treatment, subjects contribute 55% of their endowment to public goods in the existence of punishment opportunity. Additionally, subjects under Stranger and Punishment treatment tend to contribute significantly less than those in Partner and no Punishment treatment.
Explanation of contribution: There are several explanation for the voluntary mechanism contribution. The first reason is altruism or warm-glow. It means people care not only about their interest but also the welfare of others and they feel better when they do something good. This explains why a fraction of people contribute even in case of Stranger and no punishment treatment. The second explanation for the contribution to public goods is conditional cooperation. We observe there is a higher amount of contribution in case of Partner treatment than in case of Stranger treatment because the contribution of one member is conditionally dependent on the contribution of others. In other word, subjects behave reciprocally with their partner. The third reason is efficiency-seeking motives. Subjects are aware of the fact that if they all together give more to public goods, all of them are better off than in case of free-riding. An important reason is that subjects are afraid of being punished if they are free-riders or contribute too little. The fear of punishment forces them to give more to public goods.
Implication: people trigger different behavior when they are paired with the same people, as opposed to the case when they are matched with a new player in every round. Moreover, the presence of informal sanction makes them contribute more than the case of no punishment opportunity.
Application:
The sanction of free-riding plays a significant role in the real world. A typical example is that shirking workers often are punished by other colleagues under teamwork or tax evasion can be sanctioned if the activity is detected. In this research, the significant effect of the punishment opportunities on contribution to public goods proposes that the willingness to punish free-riding leads to an increase in the contribution substantially. At the same time, the neglect of punishment can lead to the motivation of free-riding.
Therefore, punishment seems to be an effective instrument to motivate the corporation however, the question is that is punishment a realistic tool? In reality, despite of a huge magnitude of punishment, tax evasion still happens in many sectors. The reason may be the difficulty of detection of free-riding. Furthermore, there are several detrimental effects of punishment. The presence of punishment can crowd out of good intentions. In trust game, trustees return to trustors much less amount of money if punishment is applied than if sanction is available but the trustors do not apply it . The other aspect is the mechanism of retaliation. In the existence of counter-punishment, the fear of being punished back makes subjects neglect to punish; therefore, it leads to the reduction of the contribution (Normann, 2008).
F. Further research
In fact, both society and individuals are better off if they contribute to public goods and due to some limitations of punishment mechanism, further researches should study in which case punishment works and how to encourage people to contribute even in the absence of sanction. Behavior economics shows that people are motivated by many factors rather than only self-interest such as self-image or social-image or emotions. The study of pro-social preferences can find solutions to public goods problem.
Limitation of the Proposed Study: an issue of repeated measure design is learning effect. Subjects may become better at setting strategy for subsequent treatment: thus introducing a confounding variable. The observed results may be because the subjects got better at learning.
G. Ethics
In any student that require human subjects to participate in the experiment, a signed consent form is essential (Jackson, 2012). Before joining the experiment, participants are completely aware of the aim of the research and they participate voluntarily. The subjects will be informed the purpose of the study. They will be told that they can decide not to continue the experiment at any time. Confidentiality of the data is also important. Additionally, subjects are not informed about the total outcome of others.
Bibliography
Falk, A. F. (2003). On the Nature of Fair Behavior. Economic Inquiry. Economic Inquiry, 41(1), 20-26.
Greene, J. B. (1996). Determinants of Insensitivity to Quantity in Valuation of Public Goods: Contribution, Warm Glow, Budget Constraints, Availability, and Prominence. Journal of Experimental Psychology, Vol. 2 (2), 107-125.
Jackson, S. (2012). Reasearch Methods and Statistics: A Critical Thinking Approach. London: Cengage Learning.
Kumakawa, T. (2013). Social Rewards and Sanctions: A Voluntary Contribution. Journal of Neuroscience, Psychology, and Economics, Vol. 6, No. 3, 186-200.
Normann, N. (2008). A Comparative Statics Analysis of Punishment in Public-Good Experiments. Experimental Economics, Volume 11.
E. Results
