Jubo Yan Kent Messer University of Delaware Jordan Suter Oberlin College

1. Can Context Effects Mitigate the Free-Riding Behavior that Causes Negative Externalities? : An Experimental Investigation Jubo Yan Kent Messer University of Delaware Jordan Suter Oberlin College

2. INTRODUCTION • Externality - environmental, public health, and other social problems • Not from the direct actions of malign individuals • Arise indirectly from benign people’s self-interested behavior

3. INTRODUCTION • Standard Economic Theory -- a bleak assessment of outcome given voluntary behaviors • Behavioral Economics -- the context may be an effective tool to reduce the pervasiveness of negative externalities.

4. LITERATURE (Andreoni 1995) • Contributing to a public good • Incurring a negative externality on the other group-members • MPCR=1/2=0.5

5. LITERATURE (Andreoni 1995)

6. LITERATURE (Messer et al. 2007) • Public good problem can be improved or even overcome in a laboratory setting • Introducing a variety of real world contexts to the decision setting • Voting: A confidential majority vote between two options (Group Account & Private Lottery) • Cheap Talk: An open discussion with group members up to ten minutes • Status Quo: Money is initially allocated in the Group Account

7. LITERATURE (Messer et al. 2007) • Individual Account: Return Rate 1 • Group Account: Return Rate 1.5 • MPCR=1.5/7=0.214

8. No Status Quo without Voting and Cheap Talk

9. Status Quo without Voting and Cheap Talk

10. No Status Quo with Voting and Cheap Talk

11. Status Quo with Voting and Cheap Talk

12. EXPERIMENT DESIGN • Group size: 7 • Number of rounds: 20 (predetermined but not announced) • Account A: No externality; Return rate 1.5 • Account B: Externality; Return rate 2.5 with Externality

13. EXPERIMENT DESIGN • Status Quo: Money initially allocated in Account A • Subjects are given one dollar at the beginning of each round (in Account A or in Account B) • MPCR=1.5/7=0.214

14. EXPECTATION • Cheap Talk and Voting together can eliminate the negative externality problem on some level • The Contribution Rate is lower than Messer et all 2007 according to the conclusion in Andreoni 1995

15. No Status Quo without Voting and Cheap Talk

16. Status Quo without Voting and Cheap Talk

17. No Status Quo with Voting and Cheap Talk

18. Status Quo with Voting and Cheap Talk

19. Positive vs. Negative (No Status Quo)

20. Positive vs. Negative (Status Quo)

21. Positive vs. Negative (No Status Quo with V&C)

22. Positive vs. Negative (Status Quo with V&C)

23. CONCLUSION • Voting and Cheap Talk can largely eliminate the externality problem • The effect of Status Quo is different with V&C and without V&C which also requires future works • The difference between the positive and negative frameworks diminishes from round to round without Voting and Cheap Talk

24. Thank you! Any Questions or comments?