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Cost Share Adjustment Process for Public Goods: Exploring Alternative Institutions for Coordination Under Heterogeneity

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Type: Working Paper
Author: Loehman, Edna T.; Kiser, Richard; Rassenti, Stephen J.
Date: 2001
URI: https://hdl.handle.net/10535/5813
Sector: Theory
Subject(s): experimental economics
cost benefit analysis
decision making
game theory
Abstract: "This paper reports experimental comparison of four institutions or mechanisms for group decision about cost-sharing for a public good when there is heterogeneity in endowments and rewards. The foundation for design of these institutions is an optimizing algorithm for finding group agreement. Three of the institutions are based on price-taking behavior: each group member selects a quantity given a personalized cost schedule. The fourth mechanism is similar to a Voluntary Contribution Mechanism in its use of bids, but it includes optimizing features. Three of the four use some form of bidding. To compare these institutions experimentally, each was embedded in a game of group decision through which a group could locate a unanimous agreement among proposals. Testing confirmed that the nature of institutional rules can greatly affect individual behavior and cooperation in groups."

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