Public Goods Game

Student Instructions

Decision Screen• Everyone starts out with 10 tokens.

• You decide how many tokens to send to the “Group Tokens” account and how many to keep as “My Tokens”

• The highlighted column shows your possible earnings based on the decisions of others in the group (scroll to see more).

Decision Screen• To move the tokens to the “Group Tokens” box finger drag each token until you are satisfied with your decision.

• You can move tokens back and forth until you lock in your decision.

• Press and hold the “Send” token to lock in your decision.

WHAT IF? Analysis• Touch the others’ average row to highlight.

• The red box is your round earnings IF you keep your current decision (5) AND IF the others’ group members send the average expected (7) to the “Group Tokens” account.

Provision Point Summary• Shown (top) is the outcome when the total group tokens = 32.

• If any group member sends one less token, then everyone makes 10 tokens.

• More than 32 total group tokens results in production of a more valuable public good.

When Voluntary Provision is Successful• The summary

stage will tell you voluntary provision was successful.

• The tokens you send will disappear and your equal share of the multiplied total group tokens is added to your “My Tokens”

When Voluntary Provision is Not Successful

• The summary stage will tell you voluntary provision was a failure.

• The tokens you send will be refunded to your “My Tokens” and you will end up back where you started at 10 tokens.

Summary/Earnings Table• Use the

bottom table to compare rounds over time.

• You can see the number of “Group Failures” including your group

• You will know your group failed that round if your round earnings = 10

Discussion of the voluntary provision rounds

• Who sent all of their tokens each round? Why?

• Who kept all of their tokens each round? Why?

• Who did something else?• Did verbal communication help more?• Is this more of a coordination problem or a

cooperation problem?

Public Goods Problem

• Private goods: excludable & rival• Public goods: nonexcludable & nonrival– Incentive to free ride – once public good is made

available cannot exclude non-contributors from consuming

– Conditional Cooperation– Together result in underproduction

What if the Government Provides the Public Good Anyways?

Backup Government Provision – tax is “localized”

Government Backup Summary• Shown (top) is the outcome when the total group tokens = 32.

• If any group member sends one less token, a government backup provision occurs and everyone makes 14 tokens.

• More than 32 total group tokens results in production of a more valuable good.

When No Government Backup Occurs• The summary

stage will tell you voluntary provision was successful.

• The tokens you send will disappear and your equal share of tokens is added to your “My Tokens” (As in previous rounds).

When Government Backup Occurs• The summary

stage will tell you voluntary provision was a failure.

• The tokens you send will be refunded to your “My Tokens”.

• Your Equal Share is added because the government provides the public good.

• Subtracted is your equal share of the tax burden of government provision.

Discussion of the government backup rounds with a “localized” tax

• Who sent more of their tokens each round? Why?

• Who kept more of their tokens each round? Why?

• Who did something else?• Did backup provision help voluntary

provision?

What if the Government Provides the Public Good Anyways?

Backup Government Provision – tax is “federalized”

When No Government Backup Occurs• The cost of all

government provisions are shared equally amongst the classroom. Everyone pays a “federal” tax

• Thus your payoff table will vary based on how many other groups fail.

When 1 Government Backup Occurs in the Other Group• You can toggle

the “Table if # other groups fail” to see how your payoff table shrinks with the number of other group failures.

• Your decision will only influence your group’s success/failure.

When No Government Backup Occurs• The summary

stage will tell you how many groups failed in voluntary provision (# of government backups).

• The Government Tax in this setting is paid by everyone.

When 1 Government Backup Occurs (your group)• In this example

your group failed in voluntary provision but the other group did not.

• The tax bill for government backup would be 16 if “localized” however the bill is shared with the other group.

• Everyone pays 8 tokens so your group can still have the public good.

When 2 Government Backups Occur(your group and the other group)• In this setting

both groups failed and there are two government produced public goods to finance.

• The “federalized” tax bill climbs to 16 tokens per person.

Discussion of the government backup rounds with a “federalized” tax

• Who sent more of their tokens each round? Why?

• Who kept more of their tokens each round? Why?

• Who did something else?• Did the total number of group failures

increase in this setting? Why?

Market Failure and Government Failure

• Classic public goods problem is a story of market failure. Suggests government provision is the likely alternative.

• However, knowledge of the possibility of government provision distorts incentives.– Moral hazard– Reduced civic/social responsibility– Free-riding off of other tax payers in “federalized

tax”

If you’re paying, I’ll have top sirloin!• Who are the free-riders in this story?• Who are the forced-riders in this story?• What incentive is there to be conservative on

consumption of public goods?• Does government provision solve multiple public

goods problems or simply bundle them into one GIANT tragedy of the commons?

• Public Choice (economics of politics) explains why government failure occurs quite often in providing the efficient level of public goods.