On the crowding effect of public policies

1. On the crowding effect of public policies Clara Villegas-Palacio University of Gothenburg Camp resource XVII NC State University June, 2010

2. Presentation Outline • Introduction – crowding motivation theory • Crowding effect of non-monetary interventions on voluntary contributions to PG • Does disclosure crowd-out cooperation? • (Joint work with Peter Martinsson) • Introduction • Experimental Design • Main Results • Crowding effect of monetary interventions on VC to PG • Short run and long run crowding effects of subsidies on voluntary contributions Public goods • (To be done with Jorge Bonilla and Peter Martinsson) • Experimental design

3. Introduction • Extensive evidence in the literature of voluntary contributions to public goods (PG) • Individual behavior in PG situations is not driven by economic motives alone • Different motivations (Nyborg and Rege 2003) • Altruism (Hammond 1987; Andreoni 1990) • Social norms (Holländer 1990, Rege 2000) • Fairness (Fehr and Schmidt 1999)

4. Introduction • These motivations may interact with an introduced intervention (policy) leading to crowding in/out of contributions– Consequences for the provision of PG • Monetary interventions • Nyborg and Rege (2000) analyze possible crowding effects of subsidization of private contributions • Non monetary interventions • Cardenas and Stranlund (2000): effect of rules and regulations imposed from outside the community on local environmental quality

5. Non-monetary intervention Does disclosure crowd out cooperation? Peter Martinsson, Clara Villegas

6. Introduction • Previous literature (Bénabou and Tirole 2006; Ariely et al.2009) discuss three broad motivations for individuals to behave pro-socially: • Intrinsic motivation - altruism • Extrinsic motivation – monetary reward • Image motivation – social approval • Bénabou and Tirole (2006) suggest possible crowding effects of disclosure: • “Altering any of the three components of motivation, for instance through the use of extrinsic incentives or a greater publicity given to action, changes the meaning attached to pro-social behavior”

7. Introduction - Hypotheses • Investigate crowding effects of disclosure on voluntary contributions to a PG using an experimental approach • Why do we expect an interaction between disclosure and motivations for voluntary cooperation? Image motivations External interventions Intrinsic motivation Disclosure (non monetary intervention) (+): Perceived as supportive (-): Perceived as controlling (-) “Good actions become suspected of being motivated by appearances” (+) or (-) by social norms Total effect = f (crowding effect on intrinsic motivation + crowding effect on image motivation)

8. Introduction - Literature • Mixed evidence in previous experimental literature: • Rege and Telle (2004): Disclosure crowds- in contributions • Noussair and Tucker (2007): No significant difference between standard and disclosure treatment • Lab experiment – (Linear) Public Goods game – our standard treatment • Experiments are run with students as participants • People are randomly allocated in groups of 4 participants • Each subject receives an endowment of 20 tokens • Subject decides on contribution to the Public good • For each token contributed to the public good each subject in the group receives 0.4 tokens • All decisions are anonymous

9. Experimental design • One-shot (no strategic behavior), linear public good game conducted with students in Colombia. • Two sessions per treatment. 24 participants in each session • Randomly allocated to groups of 4 members

10. Some results • Mean unconditional contribution

11. T1. No disclosure T2. Out-group disclosure .3 .2 .1 0 T3. In-group disclosure T4. Joint in-group and out-group disclosure .3 .2 .1 0 0 5 10 15 20 0 5 10 15 20 Unconditional contribution Some results • We find that when implementing joint in-group and out-group disclosure: • The proportion of subjects contributing the whole endowment significantly increases compared to in the anonymity treatment • The proportion of non-contributions does not change significantly.

12. Discussion and conclusions • Significantly higher variance in unconditional contributions under joint disclosure: unconditional contribution may be moved in various ways • Effect of the context of the game in our results. • Groups in our study studies lack any history of interaction which may be crucial for pro-social behaviour • No incentives for reputation building • Reciprocity is not present • Exogenous vs. Endogenous choice of institutions

13. Monetary intervention • Crowding effects of subsidies to voluntary contributions to public goods. • An experimental test

14. Introduction • Are there long-run crowding effects of PES schemes on voluntary conservation? (Field experiment with farmers in Colombia) • More general question to be studied first: How do subsidies affect voluntary cooperation in a PG? • Do we observe a short-run crowding-in/out effect on voluntary contributions? • What would happen if the policy is reversed? (Long run crowding effect) • Gächter et al (2009): one-shot and repeated gift-exchange experiments

15. Which hypothesis can be drawn from existing theory? • Economics literature- Nyborg and Rege (2003) • Short run: no effect / crowding-in effect • Long run: crowding-in effect. • Psycological literature: • Short run: crowding in • Long run: crowding out

16. Experimental design Q1. Are there short-run and long-run crowding effects when introducing a subsidy to voluntary contributions to Public Goods? First set of experiments: Confounding effects: strategic contributions To avoid strategic motivations: Sequence of one shot PGG with new matching every period.

17. Experimental design Q1. Are there short-run and long-run crowding effects when introducing a subsidy to voluntary contributions to Public Goods? Short run crowding: Long run crowding:

18. Experimental design Q2. Are there crowding effects under repeated interaction? Second set of experiments: Same experimental design but with fixed groupsduring the 30 periods. Q3. Does the experience of no-subsidy matter for short and long-run crowding effects? Add one extra-treatment to the first and second set of experiments

19. Experimental design • To be decided: How should we introduce the subsidy into the game? • To present it as a subsidy comming from a third agent (problematic) • To make the contributions to the PG cheaper • Subjects are taxed in the NS treatment and the tax is removed for the S treatment

20. Thanks

21. Which hypothesis can we draw from existing theory? • Nyborg and Rege (2003) discuss some models that can explain voluntary contributions and their implications for crowding effects: • Homo Economicus: • Short run: subsidies have no effect • Pure altruism: • Short run: subsidies have no effect • Impure altruism: • Short run: subsidies crowd-incontributions

22. Which hypothesis can we draw from existing theory? • Nyborg and Rege (2003): • Social norms models • Holländer,1990: crowding-in in short run • Rege, 2003: crowding-in in both short and long run • Fairness models: crowding-in in short run • Psycological literature: • Short run: crowding in • Long run: crowding out

23. Introduction - Literature • Mixed evidence in previous literature: • Rege and Telle (2004): Disclosure crowds- in contributions • Noussair and Tucker (2007): No significant difference between standard and disclosure treatment • Disclosure of behavior but not identity • Sell and Wilson (1991): Crowds-in contributions • Croson (2001): multiperiod PGG. No impact on contributions • Field experiment: • Soetevent (2005): Church offers among 30 churches in the Netherlands • Crowds-in donation to causes outside the church