Voluntary Partnerships For Equally Sharing Contribution Costs - Theoretical Aspects and Experimental Evidence -

Irene Maria Buso, Daniela Di Cagno, Werner Güth () and Lorenzo Spadoni

No 1/2021, Working Papers CESARE from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: Contributors to public goods with individual commitment power decide before voluntarily contributing, whether and when to join the (sub)group whose partners equally share the cost of their contributions. We analyse the voluntary formation of the cost sharing partnership, when it is internally (no partner wants to opt out) and externally (no outsider wants to opt in) stable, and how (un)stable partnerships affect contribution behaviour. All contributors decide between joining and not joining for all possible conditions before learning in which random sequence individual contributors successively enter or not the partnership. After being informed about whether there is no partnership and, when there is one, how many belong to it, and whether one is partner or outsider, all group members independently contribute. So participants can freeride not only by abstaining from voluntary contributions, but also by not joining the partnership. Theoretically participants would form a stable cost sharing partnership whose partners (outsiders) contribute maximally (minimally); experimental evidece shows that hardly any such benchmark behavior exists. Instead we confirm a strong inclination to join the partnership to avoid or at least weaken freeridng incentives.

Keywords: Endogenous Public Good; Group Formation; Group Size. (search for similar items in EconPapers)
JEL-codes: C92 D85 H41 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth and nep-isf
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