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The ratchet effect in social dilemmas

Carlo Gallier and Bodo Sturm

Journal of Economic Behavior & Organization, 2021, vol. 186, issue C, 251-268

Abstract: In this paper, we investigate whether dynamic incentive schemes lead to a ratchet effect in a social dilemma. We test whether subjects strategically restrict their contribution levels at the beginning of a cumulative public goods game in order to avoid high obligations in the future and how this affects efficiency. The incentive schemes prescribe that individual contributions have to be at least as high as, or strictly higher than, contributions in the previous period. We observe a substantial and statistically significant ratchet effect. Participants reduce their public good contribution levels at the beginning of the game, anticipating that higher contributions imply higher minimum contribution levels in the future, which increases the risk of being exploited by free-riders. While the dynamic incentive schemes lead to increasing contribution levels over the course of the game, this increase is not strong enough to compensate the efficiency losses at the beginning.

Keywords: Public goods; Dynamic incentives; Minimum contribution levels; Ratchet effect (search for similar items in EconPapers)
JEL-codes: C72 C92 H41 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:186:y:2021:i:c:p:251-268

DOI: 10.1016/j.jebo.2021.03.022

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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