Public Economics

Lectures (~ 38 min)

Additional Resources

Homework 6

Experiment Results

Recall the experiment I had you all take place in several weeks ago. You were all given 5 points of extra credit and you could either keep it all or contribute some of those points to a class pool. However many points I collected back I would double and redistribute evenly among those who participated.

The communal pool of points is an example of a good that is non-excludable. Everyone in the class benefits from the common pool just by being in the class. However the common pool of points only exists if people contribute to the pool. This is analogous to a park that is free to enjoy but relies on donations to buy land for the park. Everyone can enjoy the park but it only exists in the first place if people donate.

The economic efficient outcome in this case is for eveyone to donate all 5 points back. If everyone does that, the whole class will have 10 points. However, if everyone does that, you as an individual should not donate if you are a rational economic agent since you can maximize your points by recieving the points from the common pool but keeping all of your initally allocated points for yourself.

Anyway, the results are in and this class is quite charitable (See the histogram below). 18 of you participated in the experiment and 12 of you choose to give back all of your points. 1 each chose to give back 4 and 3 points. Two of you gave back 2 points. Finally, 2 people did decide to keep all of their points for themselve (i.e. they decided to be free riders and benefit from the common resource without paying for it). Remeber, as economists we cannot fault them for being rational agents! I am somewhat surpised by the results. I expected many more of you to keep your points for yourself. If more people in the world acted like this class did in this experiment, public goods and common pool resources would be much less of a problem.

In total, 71 points were contributed to the common pool meaning 142 are to be distributed among the 18 of you who participated. So everyone who particpated gets 7.88 points in addition to however many points they decided to keep. I'm actually going to give everyone who participated 13 points (the maximum anyone recieved in the experiment). This was the plan all along, but revealing this before hand may compromised the experiment. This is whats called making the experiment “incentive compatible”, meaning the participants need to think the stakes are real to facilitate a truthful answer. For example, asking someone how much they would be hypothetically willing to pay for a good may be differnt that what they are actually willing to pay if asked to take out their wallet.

Hopefully you learned something from this or at least found it interesting.

Contributed Points Histogram