Doctoral Dissertation Research in Economics: To Join or Not to Join: Coalition Formation in a Public Goods Game

Virginia Polytechnic Institute And State University, Blacksburg VA

Investigators

Abstract

This research project will use economic theory and laboratory experiments to study how coalitions form to provide public goods efficiently. Public goods are goods or services that can be simultaneously consumed by several people and there is no mechanism to exclude anyone from consuming it once it is provided. Because of these characteristics, there is strong incentives to “free ride”---enjoy the public good without paying for it provision. This usually results in inadequate supply of the public good. A possible solution of the free rider problem is the formation of coalitions to collectively provide public goods. While coalitions may form to produce public goods, economists do not understand the conditions under which these coalitions are likely to form and how these conditions affect the efficiency with which such coalitions provide public goods. This project will combine insights from behavioral economics and laboratory experiments to study coalition formation for the provision of public goods. The research design will allow the researchers to investigate several aspects of coalition formation in public goods provision. The findings of this research could have implications for many problems that society and businesses face today such as sustainable development and provision of public services like health care and public infrastructure. The results of this research will lead to improved provision of public goods, such as infrastructure, hence increase economic growth and improve living standards in the US. This study uses theoretical and experimental methods to explore behavioral economics based explanations for the formation of coalitions and their role in the provision of public goods. While existing public goods theory predicts free riding and inefficient outcomes, experimental results suggest cooperation exists with contribution rates at 40-60 percent of the efficient level, suggesting that theoretical approaches miss something important. This research takes a novel approach to the public goods game, allowing for heterogeneity in privately known social preferences between members of society as well as variation in individual returns from the public good. A two stage mechanism allows individuals to choose whether or not to join the coalition in the first stage. Once individuals learn the size of the coalition, they then determine the desirability of contributing to the public good provision in the second stage. As a result, although individual social preferences are private information, the mechanism increases the size of the public good and thus outcome efficiency. The research tests the theoretical predictions of this model using incentivized laboratory experiments which will provide evidence on whether decision makers in a simple environment can achieve predicted outcomes. The results of this study will further facilitate a better understanding of the importance of coalitions in provisioning of public goods. The results of this research will lead to improve provision of public goods, such as infrastructure, hence increase economic growth and improved living standards in the US. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.