Leadership and motivation for public goods contributions

Date01 February 2018
AuthorBryan C. McCannon
Publication Date01 February 2018
DOIhttp://doi.org/10.1111/sjpe.12151
LEADERSHIP AND MOTIVATION FOR
PUBLIC GOODS CONTRIBUTIONS
Bryan C. McCannon*
ABSTRACT
Results from a leaderfollower public goods game are presented. An individual,
when randomly selected to make a contribution knowing others will observe the
selection, gives more than in the simultaneous-move public goods game. Follow-
ers adopt a quasi-matching strategy where they systematically donate less than
the leader, but contribute more when the leader does and contribute less when
the leader free rides. The net result is increased provision of a public good when
contributions are sequential. The results highlight that psychological preferences,
rather than solely social preferences, can explain behavior.
II
NTRODUCTION
A classic dilemma in public economics is how to discourage free riding and
encourage contributions to public goods. A significant amount of experimen-
tal research has investigated this (Ledyard, 1995; Chaudhuri, 2011) dating
back to the early studies of Marwell and Ames (1981) and Isaac et al. (1985).
In the standard Public Goods Game considered, individual contributions
improve the outcome for others, but have a negative net effect on personal
benefit; i.e., the marginal return to the individual for each dollar contributed
is less than one dollar.
To rationalize the contributions that are made, these works typically refer-
ence social preferences, or rather, ‘other-regarding’ preferences (Fehr and Fis-
chbacher, 2002). It is argued that there exists a component to each person’s
utility function that incorporates the well-being of the other players, or rather,
there is a ‘warm glow’ benefit (Andreoni, 1995). Examples of social prefer-
ences are altruism, inequality aversion, egalitarianism, and fairness (see
Eswarah and Kotwal (2004) for an example). Having social preferences pro-
vides a trade-off between personal gain and the benefit of others, which can
explain the lack of complete free riding.
An alternative argument promoted here is that psychological preferences
are also important to explaining behavior. In psychological game theory, first
introduced by Geanakoplos et al. (1989) and extended to extensive-form
*West Virginia University
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12151, Vol. 65, No. 1, February 2018
©2017 Scottish Economic Society.
68
games by Battigalli and Dufwenberg (2009), the preference ordering over the
set of possible outcomes of a game can be made dependent on other players’
beliefs regarding one’s strategy selections, rather first-order beliefs, or a
player’s beliefs on other players’ beliefs regarding one’s strategy, second-order
beliefs, or so on. An example of a psychological preference is guilt aversion.
1
The important distinction between social preferences and psychological prefer-
ences is that in the former, an individual cares about the outcome of the
game, while in the latter, a player is concerned with how others view the strat-
egy taken.
In standard public goods games, one is, for the most part, unable to differ-
entiate social and psychological preferences. This is due to the fact that
choices are made not only anonymously but also simultaneously.
2
In practice,
though, public goods contributions are frequently made sequentially. A fund-
raising campaign, for example, may first rely on a large initial donor before
marketing the project to other targeted donors. Sequential public goods con-
tributions allow for leadership decisions to influence outcomes.
If psychological preferences are not important, then an individual will sim-
ply trade-off personal gain and the outcome obtained by others. In fact, a the-
oretical model is presented where if only social preferences matter, the leader
contributes less than the followers. If a first-mover acknowledges that the fol-
lowers have strong social preferences, then his lack of contribution will
increase the marginal utility of giving by the followers. Thus, a leader with
strong social preferences will be motivated to give less than if contributions
were simultaneous. Alternatively, if psychological preferences are important
drivers, then being in a leadership position, where others will observe and
respond to your giving, encourages greater contributions.
To appreciate the role of leadership and psychological preferences on deci-
sions, experiments of the Public Goods Game are contributed. In the design
used, subjects are put into groups of four and are each endowed with five
experimental dollars. One is selected at random to make his contribution first.
The randomly selected leader’s contribution is made public to the other mem-
bers of the group before they make their contributions. The total amount
given is tripled and evenly shared. In a second treatment, the four in the
group each make a contribution without knowing the offer of any other per-
son.
Results show that leaders make larger contributions to the public good than
in situations where there is no sequencing of decisions. Furthermore, followers
adopt a quasi-matching strategy. When the leader makes a larger contribu-
tion, the followers do so as well, but when the leader free rides, so too do the
1
Huang and Wu (1994) discussed how psychological game theory can act through social
norms to reduce deviant, criminal behavior. Also, see Colman (2003) for an early important
discussion. McCannon (2017) used it to capture the role of contingent cooperation prefer-
ences and social norms in explaining cooperation in Prisoner Dilemma games.
2
An important exception is the experimental design of Dufwenberg et al. (2011) were they
use different framing techniques to explore psychological preferences. They do not attempt to
differentiate it from social preference setups.
LEADERSHIP AND PUBLIC GOODS 69
Scottish Journal of Political Economy
©2017 Scottish Economic Society

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