Working Paper: NBER ID: w15967
Authors: Astrid Dannenberg; Andreas Lange; Bodo Sturm
Abstract: The provision of public goods often relies on voluntary contributions and cooperation. While most of the experimental literature focuses on individual contributions, many real-world problems involve the formation of institutions among subgroups (coalitions) of players. International agreements serve as one example. This paper experimentally tests theory on the formation of coalitions in different institutions and compares those to a voluntary contribution mechanism. The experiment confirms the rather pessimistic conclusions from the theory: only few players form a coalition when the institution prescribes the full internalization of mutual benefits of members. Contrary to theory, coalitions that try to reduce the free-riding incentives by requiring less provision from their members, do not attract additional members. Substantial efficiency gains occur, however, both along the extensive and intensive margin when coalition members can each suggest a minimum contribution level with the smallest common denominator being binding. The experiment thereby shows that the acceptance of institutions depends on how terms of coalitions are reached.
Keywords: Coalitions; Public Goods; Experimental Evidence; Free-riding; Institutional Arrangements
JEL Codes: C72; C92; D71; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Coalition members fully internalize benefits (coalfull) (C71) | Only a few players form a coalition (C71) |
| Only a few players form a coalition (C71) | Minimal efficiency gains compared to voluntary contribution mechanisms (VCM) (D61) |
| Reducing the required public good provision level (H42) | Does not attract additional members to the coalition (D79) |
| When coalition members can suggest a minimum contribution level (D70) | Coalition size increases significantly (D79) |
| The smallest common denominator approach (C69) | Significantly increases contributions and efficiency among coalition members (D74) |
| Coalition size increases (D79) | Internalization ratio decreases (F69) |