Jubo YanKent Messer

University of Delaware

Jordan SuterOberlin College

Externality - environmental, public health, and other social problems

Not from the direct actions of malign individuals

Arise indirectly from benign people’s self-interested behavior

Standard Economic Theory -- a bleak assessment of outcome given voluntary behaviors

Behavioral Economics -- the context may be an effective tool to reduce the pervasiveness of negative externalities.

Contributing to a public good

Incurring a negative externality on the other group-members

MPCR=1/2=0.5

Public good problem can be improved or even overcome in a laboratory setting

Introducing a variety of real world contexts to the decision setting

◦ Voting: A confidential majority vote between two options (Group Account & Private Lottery)

◦ Cheap Talk: An open discussion with group members up to ten minutes

◦ Status Quo: Money is initially allocated in the Group Account

Individual Account: Return Rate 1

Group Account: Return Rate 1.5

MPCR=1.5/7=0.214

1.5 1.5

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No Status Quo without Voting and Cheap TalkNo Status Quo without Voting and Cheap Talk

Status Quo without Voting and Cheap TalkStatus Quo without Voting and Cheap Talk

No Status Quo with Voting and Cheap TalkNo Status Quo with Voting and Cheap Talk

Status Quo with Voting and Cheap TalkStatus Quo with Voting and Cheap Talk

Group size: 7

Number of rounds: 20 (predetermined but not announced)

Account A: No externality; Return rate 1.5

Account B: Externality; Return rate 2.5 with Externality

Status Quo: Money initially allocated in Account A

Subjects are given one dollar at the beginning of each round (in Account A or in Account B)

MPCR=1.5/7=0.2141.5 1.5

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1.5 1.5 9

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1.52.5 1.5

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Cheap Talk and Voting together can eliminate the negative externality problem on some level

The Contribution Rate is lower than Messer et all 2007 according to the conclusion in Andreoni 1995

EXPECTATIONEXPECTATION

No Status Quo without Voting and Cheap TalkNo Status Quo without Voting and Cheap Talk

Status Quo without Voting and Cheap TalkStatus Quo without Voting and Cheap Talk

No Status Quo with Voting and Cheap TalkNo Status Quo with Voting and Cheap Talk

Status Quo with Voting and Cheap TalkStatus Quo with Voting and Cheap Talk

Positive vs. Negative (No Status Quo)Positive vs. Negative (No Status Quo)

Positive vs. Negative (Status Quo)Positive vs. Negative (Status Quo)

Positive vs. Negative (No Status Quo with V&C)Positive vs. Negative (No Status Quo with V&C)

Positive vs. Negative (Status Quo with V&C)Positive vs. Negative (Status Quo with V&C)

Voting and Cheap Talk can largely eliminate the externality problem

The effect of Status Quo is different with V&C and without V&C which also requires future works

The difference between the positive and negative frameworks diminishes from round to round without Voting and Cheap Talk

Thank you!

Any Questions or comments?

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