Partners, Strangers and Free Riders: an experimental study on the importance of group composition for linear public goods games

Motivation Experiment Evidence Conclusions References
Partners, Strangers and Free Riders
An Experimental Study on the Importance of Group
Composition for Linear Public Goods Games
Matheus Albergaria de Magalhães*
Edvan Soares de Oliveira*
*FUCAPE Business School
Quinto Encontro de Economia do Espírito Santo (V EEES)
FUCAPE Business School, Vitória (ES)
November 3-4, 2014
Matheus Albergaria de Magalhães

SECTIONS
Motivation
Experiment
Evidence
Conclusions
References

MOTIVATION
I Pure Public Goods: non-rival and non-exclusive .
I A few examples:
I Lighthouses (Classic Example).
I National Defense.
I Organizational Knowledge.

MOTIVATION
Examples of Public Goods
Lighthouse National Security
Source: Google Images (https://www.google.com/imghp).

MOTIVATION
Main Challenges:
I Will people take part in collective actions involving public
goods?
I Will individual actions lead to socially efficient results?

MOTIVATION
Andreoni (1988) reported three consistent results for
public-goods experiments:
1. No significant evidence of free riding in single-shot games.
2. In experiments involving repeated play, subjects’
provisions for public goods tended to decay.
3. Exact free riding was seldom realized.

MOTIVATION
Table 1
Marwell and Ames’ (1981) Summary of 12 Different Experiments
Source: Marwell and Ames (1981, Table 2, p.307).

MOTIVATION
My goals today:
I Describe a simple experiment, related to the provision of
public goods.
I Evaluate the importance of random rematching for linear
public goods games.
I Propose future research agenda for related themes.

EXPERIMENT
The Experiment:
1. We ran five-round experiments in a Business School
(Accounting, Business, Economics and MBA students).
2. Subjects filled a form deciding how to divide R$ 100
between a private and a public good.
3. For each R$ 1.00 invested in the private good, subjects
would receive R$ 1.00.
4. For each R$ 1.00 invested in the public good, subjects
would receive R$ 0.50.
5. Subjects were divided in two groups: (i) ’Partners’ (fixed
composition); (ii) ’Strangers’ (random composition).

EXPERIMENT
A Linear Public Goods Game
Individuals were given a budget (m), which could be invested
either in a private (x) or public good (g), with x + g = m.
Individual payoffs (Pi) were determined by the following
formula:
Pi = xi +
Xn
j=1
gj (1)
where n was the number of group members. The parameter
was chosen such that 0 1.

EXPERIMENT
Given the above game, we may have the following payoffs:
I Investing R$ 1.00 in the public good has a private return of
R$ 0.50..
I ..while it has a social return of R$ 2.50.
I It is Pareto efficient for subjects to invest all of their money
in the public good..
I ..but, since the private good’s return exceeds the return
from the public good, the Nash equilibrium of this game is
to invest zero in the public good (free ride).

EXPERIMENT
Two main hypotheses related to Random Rematching:
1. ‘Learning Hypothesis’: subjects may not immediately
understand the incentives of the game, but after a few
rounds, they start learning (free riding behavior increases).
2. ‘Strategies Hypothesis’: subjects believe all other subjects
behave rationally in an incomplete information version of
the Prisoner’s Dilemma.
Under the ‘Strategies Hypothesis’, we expect that giving by
‘partners’ will be greater than giving by ‘strangers’.
On the other hand, as the game approaches the end, we can
expect both ‘partners’ and ‘strangers’ to free ride.

EVIDENCE
Table 2
Descriptive Statistics

EVIDENCE
Table 3
Free Rider Index (FRI), 5-Round Experiments

EVIDENCE
Graph 1
Free Rider Index (FRI), 5-Round Experiments

EVIDENCE
Table 4
Percentage of Free Riders in Each Round

EVIDENCE
Graph 2
Percentage of Free Riders (Partners)

EVIDENCE
Graph 3
Percentage of Free Riders (Strangers)

EVIDENCE
Graph 4
Contributions to Public Goods Provision, 5-Round Experiments

EVIDENCE
Table 5
Econometric Estimations

CONCLUSIONS
I Main result: ’Strangers’ tended to cooperate more often than
’Partners’.
I Other authors reported the same result (Andreoni and Croson
2008).
I Our results suggest that random rematching can play an
important role in explaining the evolution of cooperation.

CONCLUSIONS
Future research should concentrate on experiments with the
following features:
I Longer periods (10 or 20 rounds) (Andreoni 1988).
I Restarting dates (Andreoni and Croson 2008).
I No communication among subjects.
I Complementarities between the laboratory and the field
(Fehr and Leibbrandt 2011).

REFERENCES
ANDREONI, J. Why free ride? Strategies and learning in public goods
experiments. Journal of Public Economics, v.37, n.3, p. 291-304, 1988.
ANDREONI, J.; CROSON, R. Partners versus strangers: random rematching
in public goods experiments. In: PLOTT, C.R.; SMITH, V.L. (Eds.). Handbook
of Experimental Economics Results, v.1. Amsterdam: North-Holland, 2008,
p.776-783.
FEHR, E.; LEIBBRANDT, A. A field study on cooperativeness and impatience
in the Tragedy of the Commons. Journal of Public Economics, v.95, n.9-10,
p.1144-1155, 2011.
MARWELL, G.; AMES, R.E. Economists free ride, does anyone else?
Experiments on the provision of public goods. Journal of Public Economics,
v.4, n.15, p.295-310, 1981.

Thank You
matheus.albergaria.magalhaes@gmail.com
http://www.sites.google.com/site/malbergariademagalhaes

Partners, Strangers and Free Riders: an experimental study on the importance of group composition for linear public goods games

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