The Impact of Burden Sharing Rules on the Voluntary Provision of Public Goods

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Das Wichtigste in Kürze Non-technical SummaryThe provision of public goods often faces the problem that agents need to voluntarily decide on their own contributions or -alternatively -have to agree upon some desired provision level of the public good in combination with a specific burden sharing rule. This challenge is particularly demanding, when, in addition to enforcement problems, interests differ among players due to heterogeneous preferences. International climate policy is an important example. While strong free-riding incentives prevent a pure voluntary and uncoordinated solution, international negotiations are loaded with debates on equity issues, i.e. on what constitutes a fair distribution of a global reduction target for greenhouse gas emissions.In this paper, we investigate how burden sharing rules may impact the provision level of a public good that all agents voluntarily accept. We focus on different rule-based contribution mechanisms that are based on the principle of the smallest common denominator: all agents can suggest a minimum provision level of the public good that is allocated across agents according to some predetermined rule. The minimum of all proposals, i.e. the lowest common denominator, then takes effect and creates a "lower bound" for the individual contribution levels. This approach reflects many real world institutional arrangements that either involve a simultaneous choice of provision goal and burden sharing, or sequentially try to first determine the burden sharing rule before then deciding upon the provision goal. Since each participating country needs to sign and ratify the agreement, the player with the smallest proposal is pivotal. Countries can, however, voluntarily go beyond their obligations.We experimentally compare the ability of different rule-based contribution schemes to overcome the inefficiency in public good provision. Players differ with respect to their benefits from the public good, each group consists of two low-type and two high-type agents.Our results indicate that all rule-based contribution schemes significantly increase both payoff levels relative to the standard voluntary contribution mechanism. Interestingly, the equalpayoff rule Pareto-dominates all other rules. This finding is particularly surprising since all rules are predicted to generate coordination on efficient, but differing allocations. Explicitly addressing redistribution among heterogeneous players by equalizing payoffs performs best due ...

Voting for Burden Sharing Rules in Public Goods Games

“…Similar to previous findings on the minimum contribution mechanism (e.g., Kesternich et al 2014a), group payoffs are higher in rule-based contribution schemes than in the ex-VCM (44.0) if they are adopted by an agenda setter (see Table 4). Averaged over all periods and agents, payoffs are highest in the ex-propcont setting (49.4).…”

“…The experimental literature suggests rule-based contribution schemes which are inspired by different fairness norms as being effective in enhancing cooperation (e.g., Orzen 2008;Dannenberg et al 2014;Kesternich et al 2014a, b). Free riding incentives prevent the voluntary provision of a public good and every institutional design which aims at countervailing free riding has to address the question of a fair distribution of the costs and benefits from providing public goods.…”

On the Voluntary Provision of International Public Goods

“…Kesternich et al . () analyse the efficient institutional design for voluntary private provision of public goods when agents are heterogeneous. With heterogeneous agents, the institutional arrangement to overcome free‐rider incentives has to deal with equity issues.…”

“…Kesternich et al . () focus on different predetermined rule‐based contribution mechanisms based on the least common denominator rule and show large differences in pay‐off levels between rules. Dannenberg et al .…”

Public Goods and Minimum Provision Levels: Does the Institutional Formation Affect Cooperation?*

“…() find the same effect but also that it wears off as the minimum level is increased . A related body of literature focuses on the effects of letting subjects in public goods experiments both suggest and subsequently agree on the level for contribution obligations (e.g., Kroll et al ., ; Dannenberg, ; Dannenberg et al ., ; Kesternich et al ., ; Kube et al ., ; Gallier et al ., ) . The two papers closest to our paper are Kocher et al .…”