The boon of public goods to a society is its inclusive nature where no individual can be restricted from enjoying its fruits. However, this very feature generates proclivity among individuals in the society to escape paying their share towards creation of the public good, which is known as free-riding. Interestingly, contribution levels in reality surpass predictions suggested by theoretical findings. To understand and assuage the free-riding problem, we study a public good game where individuals in a society form small groups or coalitions to carry out collective decisions about contribution levels. Such cooperative action is further augmented when we account for social and other-regarding preferences in individuals, which make them care about well-being of others.
While social preferences are well documented in other economic environments, their effect on the formation, likelihood and size of coalitions to provide public goods is not well understood. This dissertation uses both theoretical and experimental methods to incorporate social preferences into the study of coalition formation and how such coalitions affect the provision of the public good. In any public good provision problem, marginal per capita return (MPCR) is an important determinant. For every dollar a person spends on privately providing the public good, the MPCR measures how much the individual gets back. Conventional theory suggests an inverse relationship between coalition size and MPCR, which stands contrary to recent experimental evidences. My dissertation uses heterogenous social preferences to arrive at sufficient conditions which establishes a positive relationship between coalition size and MPCR.
Chapter 2 theoretically investigates the conditions required to achieve a positive relationship between coalition size and MPCR when an individual's social preference is private information. The model is a two-stage public good game, where in the first stage individuals decide whether or not to join the coalition and then in the next stage, the coalition votes to contribute to public good. The results suggest that individuals with pro social preferences are more likely to join the coalition and upon joining always contribute to the public good. Higher MPCR further increase an individual's likelihood to join coalition and contribute to public good. The results hold true under different model specifications as well.
Chapter 3 test the theoretical predictions of Chapter 2 by using an experiment. In the experiment, subject's payoff is determined by exogenously inducing social preferences into an individual's payoff function. The experiment validates the predictions of theoretical model and we find that individuals who have lower weight on their own payoff are likely to join the coalition and also vote to contribute to public good. Higher return from public good also results in larger coalition size and increases the likelihood to contribute to public good.
Chapter 4 also tests the theoretical prediction, however, here the preferences are estimated by using an incentivized task based on how much money they are willing to give to someone else. The outcomes from the incentivized task suggest that individuals who give more money to others are more likely to join the coalition and also contribute to public good. High MPCR ensures larger coalition size and more individuals contributing to public good. We also find that coalition size have a positive impact on individual's decision to join the coalition and contribute. / Doctor of Philosophy / Public goods like healthcare services, free-vaccinations, cleaner environment is an important parameter to the development of a society. The primary features of these goods are non-excludability – no one can be excluded from enjoying the benefit of the good and non-rivalry such that multiple individuals can enjoy its benefits. These features allow many to free-ride and escape contribution towards the provision of the public good. In this dissertation, we study how coalitions amongst people in a society can potentially assuage the free-riding problem. International Environment Agreements (IEA) such as Kyoto Protocol, Paris agreement are some of the examples of existing coalitions. While in practice coalitions, i.e., subgroups of individuals who agree to act collectively to produce a public good exist, the conditions under which these coalitions are most likely to form are not well understood.
In this dissertation we incorporate facets of Behavioral Economics to understand functioning of coalitions which will allow to incorporate various behavioral and other-regarding preferences to study economic outcomes. Other-regarding preferences assume that individuals also care about the well-being of others. The dissertation uses both theory and experiments to understand and test the conditions required for successful coalition formation through behavioral economics-based explanations.
A society is comprised of heterogeneous individuals who value public good differently and so have different willingness to pay. For example, not everyone is equally willing to pay for the construction of a public park. We exploit such heterogeneity to understand how efficient coalitions can be formed such that it increases chances of public good provision.
We construct a two-stage game where individuals choose whether or not to join the coalition in the first stage. Once individuals learn the size of the coalition they can determine whether it is desirable for them to contribute to the public good in the second stage. As a result, despite individual social preferences being private information, our mechanism increases the size of the public good and thus outcome efficiency. The design of our model also helps to test these predictions by using human subjects' experiments. We find that individuals who care more the well-being of others join the coalition and also contribute to the public good. An increase in benefit from public good also increases the likelihood of higher coalition size and higher contribution levels. In its scientific mission, the study aims to understand importance of heterogenous society in successful provisioning of public goods.
| Identifer | oai:union.ndltd.org:VTETD/oai:vtechworks.lib.vt.edu:10919/113645 |
| Date | 11 August 2021 |
| Creators | Upadhyay, Sakshi |
| Contributors | Economics, Sarangi, Sudipta, Ball, Sheryl B., Bahel, Eric A., Lin, Xu |
| Publisher | Virginia Tech |
| Source Sets | Virginia Tech Theses and Dissertation |
| Detected Language | English |
| Type | Dissertation |
| Format | ETD, application/pdf |
| Rights | In Copyright, http://rightsstatements.org/vocab/InC/1.0/ |
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