On the crowding effect of public policies

Clara Villegas-PalacioUniversity of Gothenburg

Camp resource XVIINC State University

June, 2010

Presentation Outline

Introduction – crowding motivation theory Crowding effect of non-monetary interventions on voluntary

contributions to PGo Does disclosure crowd-out cooperation?

(Joint work with Peter Martinsson)• Introduction• Experimental Design• Main Results

Crowding effect of monetary interventions on VC to PGo 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

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)o Altruism (Hammond 1987; Andreoni 1990)o Social norms (Holländer 1990, Rege 2000) o Fairness (Fehr and Schmidt 1999)

Introduction

These motivations may interact with an introduced intervention (policy) leading to crowding in/out of contributions– Consequences for the provision of PGoMonetary interventions

• Nyborg and Rege (2000) analyze possible crowding effects of subsidization of private contributions

oNon monetary interventions• Cardenas and Stranlund (2000): effect of rules and

regulations imposed from outside the community on local environmental quality

Non-monetary intervention

Does disclosure crowd out cooperation?Peter Martinsson, Clara Villegas

Previous literature (Bénabou and Tirole 2006; Ariely et al.2009) discuss three broad motivations for individuals to behave pro-socially:

o Intrinsic motivation - altruismo Extrinsic motivation – monetary rewardo 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”

Introduction

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?

External interventions Intrinsic motivation

Disclosure (non monetary intervention)

Image motivations

(-) “Good actions become suspected of being motivated by appearances”

(+) or (-) by social norms

(+): Perceived as supportive

(-): Perceived as controlling

Total effect = f (crowding effect on intrinsic motivation +

crowding effect on image motivation)

Introduction - Literature

Mixed evidence in previous experimental literature:o Rege and Telle (2004): Disclosure crowds- in contributionso 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

Experimental design

Out-group disclosure (Contributions and identity announced to all

participants in the session)

NO YES

In-group disclosure(Contributions and identity announced only to group members)

NO

Treatment 1Standard PGG

without disclosure

Treatment 2PGG with only

out-goup disclosure

YES

Treatment 3PGG with only in-group disclosure

Treatment 4PGG with both

in-group and out-group disclosure

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

Some results

Mean unconditional contribution

Out-group disclosure (Contributions and identity

announced to all participants in the session)

NO YES

In-group disclosure

(Contributions and identity

announced only to group

members)

NOTreatment 1

Mean= 39.9%

Treatment 2

Mean= 43.85%

YESTreatment 3

Mean= 43.23%

Treatment 4

Mean= 48.13%

Some results

0.1

.2.3

0.1

.2.3

0 5 10 15 20 0 5 10 15 20

T1. No disclosure T2. Out-group disclosure

T3. In-group disclosure T4. Joint in-group and out-group disclosure

Unconditional contribution

We find that when implementing joint in-group and out-group disclosure:o The proportion of subjects contributing the whole

endowment significantly increases compared to in the anonymity treatment

o The proportion of non-contributions does not change significantly.

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 behaviouro No incentives for reputation buildingo Reciprocity is not present

Exogenous vs. Endogenous choice of institutions

Monetary intervention

Crowding effects of subsidies to voluntary contributions to public goods.

An experimental test

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

Which hypothesis can be drawn from existing theory?

Economics literature- Nyborg and Rege (2003)o Short run: no effect / crowding-in effecto Long run: crowding-in effect.

Psycological literature: o Short run: crowding ino Long run: crowding out

Experimental design

Treatment label Phase 1(Period 1-10)

Phase 2(Period 11-20)

Phase 3(Period 21-30)

NS-NS-NS PG game with No subsidy (NS)

PG game with No subsidy (NS)

PG game with No subsidy (NS)

12 groups, 4 subjects each(48 subjects)

NS-S-NS PG game with No subsidy (NS)

PG game with subsidy (S)

PG game with No subsidy (NS)

12 groups, 4 subjects each(48 subjects)

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 contributionsTo avoid strategic motivations: Sequence of one shot PGG with new matching every period.

Experimental design

Treatment label

Phase 1(Period 1-10)

Phase 2(Period 11-20)

Phase 3(Period 21-30)

NS-NS-NS

NS-S-NS

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:

02)(2)( PHNSNSNSPHNSSNS CC

2)( PHNSNSNSC 3)( PHNSNSNSC 1)( PHNSNSNSC

1)( PHNSSNSC 2)( PHNSSNSC 3)( PHNSSNSC

03)(3)( PHNSNSNSPHNSSNS CC

Experimental design

Q2. Are there crowding effects under repeated interaction?Second set of experiments: Same experimental design but with fixed groups during 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

Treatment label

Phase 1(Period 1-10)

Phase 2(Period 11-20)

Phase 3(Period 21-30)

S-NS-NS PG game with subsidy (S)

PG game with No subsidy (NS)

PG game with No subsidy (NS)

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

Thanks

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:o Homo Economicus:

• Short run: subsidies have no effecto Pure altruism:

• Short run: subsidies have no effecto Impure altruism:

• Short run: subsidies crowd-in contributions

Which hypothesis can we draw from existing theory?

Nyborg and Rege (2003):o Social norms models

• Holländer,1990: crowding-in in short run• Rege, 2003: crowding-in in both short and

long runo Fairness models: crowding-in in short run

Psycological literature: o Short run: crowding ino Long run: crowding out

Introduction - Literature

Mixed evidence in previous literature:o Rege and Telle (2004): Disclosure crowds- in contributionso Noussair and Tucker (2007): No significant difference between

standard and disclosure treatment

Disclosure of behavior but not identityo Sell and Wilson (1991): Crowds-in contributionso Croson (2001): multiperiod PGG. No impact on contributions

Field experiment:o Soetevent (2005): Church offers among 30 churches in the

Netherlands• Crowds-in donation to causes outside the church