Matching Grants and Charitable Giving: Why People Sometimes Provide a Helping Hand to Fund Environmental Goods

Matching grants are a prevalent mechanism for funding environmental, conservation, and natural resource projects. However, economists have largely been silent regarding the potential benefits of these mechanisms at increasing voluntary contributions. To examine the behavioral responses to different match levels, this research uses controlled laboratory experiments with generically framed instructions and introduces a general-form matching-grant mechanism, referred to as the proportional contribution mechanism (PCM). Results show that contributions are positively correlated with both the match and the induced value of the public good even when a dominant strategy is free-riding. An implication of this partial demand revelation result is that manifestations of this type of “helping hand†social preference should be counted in benefit-cost analysis.matching grants, public goods, charitable giving, voluntary contributions, experimental economics, warm glow, helping hand, Environmental Economics and Policy, Public Economics,

Status-Quo-Bias and Voluntary Contributions: Can Lab Experiments Parallel Real World Outcomes for Generic Advertising?

Many commodities have programs assessing producers for generic advertising. Ads such as "Got Milk?" and the "Incredible Edible Egg" are a public good for producers. Most of these programs originally used the Voluntary Contribution Mechanism, but have now become mandatory because of free-riding. This research simulates both the economic and psychological details of the egg industry in experiments that produce strikingly realistic results. Because mandatory programs have recently been declared unconstitutional, we also the test the Provision Point Mechanism and show that observed low levels of free-riding for both mechanisms are the result of status quo bias.Marketing, H40, H41, M37,

ALTERNATIVE AUCTION INSTITUTIONS FOR ELECTRIC POWER MARKETS

Restructuring of electric power markets is proceeding across the United States and in many other nations around the world. The performance of these markets will influence everything from the prices faced by consumers to the reliability of the systems. The challenges of these changes present many important areas for research. For much of the northeastern United States, restructuring proposals include, at least for the short term, the formation of a single-sided auction mechanism for the wholesale market. This research uses experimental methods to analyze how these markets may function. In the experiments, the two basic uniform price auction rules are tested under three different market sizes. Early experimental results suggest the commonly proposed last-accepted-offer auction works well, but market power could be a real concern.Resource /Energy Economics and Policy,

The Value of Private Risk Versus the Value of Public Risk: An Experimental Analysis of the Johannesson et al. Conjecture

In 1996 Johannesson et al. published a paper in this journal entitled “The Value of Private Safety versus the Value of Public Safety.” Based on preliminary evidence from a hypothetical contingent valuation study, these authors argue that consumers behave as “pure altruists” and reject the notion of paternalistic preferences for safety in a coercive tax setting. These pure altruists consider the cost of a program that might be imposed on other voters when they decide whether to vote for or against public safety programs. The authors conclude that further empirical research in this area is warranted. This paper presents a set of laboratory economics experiments to test Johannesson et al.’s conjecture under controlled conditions in which participants face an actual risk of financial loss. The laboratory results extend those of Johannesson et al., providing strong evidence of pure altruism but limited support for paternalistic altruism for risk.Altruism, risk, voting, public goods, Research Methods/ Statistical Methods, Risk and Uncertainty, D81, D64, H41, C91, C92, D72,

PURE ALTRUISM AND THE VALUATION OF RISK: AN EXPERIMENTAL TEST OF THE JOHANNESSON ET AL. CONJECTURE

Johannesson et al.(1996) conjecture that in a coercive, uniform tax setting like dichotomous choice contingent valuation, willingness to pay for public programs would be affected by altruistic consideration of the costs imposed on others. Using a voting-BDM elicitation mechanism, we demonstrate such valuation petterns in an experimental economics setting.Research Methods/ Statistical Methods,

CAN HYPOTHETICAL, QUESTIONS PREDICT ACTUAL, PARTICIPATION IN PUBLIC PROGRAMS? A FIELD VALIDITY TEST USING A PROVISION POINT MECHANISM

Niagara Mohawk Power Corporation utilized a demand revealing public good mechanism to implement a green electricity program for provision of renewable energy and planting trees. This GreenChoiceTM program provided an opportunity to test the reliability of contingent valuation for predicting actual participation levels. In this study, participation levels predicted by hypothetical open-ended and dichotomous choice questions are compared to a reference level obtained from the actual GreenChoiceTM program. This approach represents an important improvement over past public goods contingent valuation validity tests which have relied on voluntary contribution mechanisms to elicit actual willingness to pay, and thus are likely to overestimate hypothetical bias because of free riding. Yet, even with a demand revealing mechanism and controlling for awareness, hypothetical participation levels obtained from dichotomous choice responses are found to significantly exceed actual contributions. In contrast, open-ended responses predict actual contribution levels, in that hypothetical open-ended responses are not significantly different from actual responses. Calibration of hypothetical responses is also explored.Public Economics, Resource /Energy Economics and Policy,

VOLUNTARY REVELATION OF THE DEMAND FOR PUBLIC GOODS USING A PROVISION POINT MECHANISM

public goods, voluntary contributions, provision point, experiments, information, group size, Resource /Energy Economics and Policy, H41, C92,

A COMPARISON OF HYPOTHETICAL PHONE AND MAIL CONTINGENT VALUATION RESPONSES FOR GREEN PRICING ELECTRICITY PROGRAMS

To date, much of the policy and research debate on contingent valuation mode effects has relied on experiences drawn from other research disciplines. This study provides the first contingent valuation phone-mail comparison that meets current standards for response rates, draws from a general population, is relevant to the valuation of general environmental goods, and allows comparisons with actual sign-ups. Consistent with previous research in other disciplines, social desirability bias is found in responses to subjective questions --thus leading to more environmentally favorable responses on the phone. However, this effect does not carry over to hypothetical participation decisions. Hypothetical bias is found in both modes. Yet, application of calibration methods using debriefing questions provided nearly identical values across modes. As such, neither mode appears to dominate from the perspective of providing more valid estimates of actual participation decisions. The selection of survey mode must be based on other criteria.Environmental Economics and Policy,

Social Preferences and Voting: An Exploration Using a Novel Preference Revealing Mechanism

Public referenda are frequently used to determine the provision of public goods. As public programs have distributional consequences, a compelling question is what role if any social preferences have on voting behavior. This paper explores this issue using laboratory experiments wherein voting outcomes lead to a known distribution of net benefits across participants. Preferences are elicited using a novel Random Price Voting Mechanism (RPVM), which is a more parsimonious mechanism than dichotomous choice referenda, but gives consistent results. Results suggest that social preferences, in particular a social efficiency motive, lead to economically meaningful deviations from self-interested voting choices and increase the likelihood that welfare-enhancing programs are implemented.Institutional and Behavioral Economics, Research Methods/ Statistical Methods, C91, C92, D64, D72, H41,

ANOMALIES IN VOTING: AN EXPERIMENTAL ANALYSIS USING A NEW, DEMAND REVEALING (RANDOM PRICE VOTING) MECHANISM

This study investigates the influence of social preferences on voting decisions using a new Random Price Voting Mechanism (RPVM), which is best thought of as a public goods voting extension of the Becker-DeGroot-Marshack mechanism for private goods. In particular, this mechanism is used to investigate experimentally whether voting decisions are affected by the distribution of net benefits associated with a proposed public program. Recent papers have shown that, in additional to selfishness, factors such as inequality aversion, maximin preferences, and efficiency may influence individual decisions. However, the effect of social preferences on voting, the predominant funding mechanism for public goods by legislatures and public referenda, has not been thoroughly examined. We first establish the presence of anomalous behavior in dichotomous voting, and introduce the RPVM as a more efficient mechanism to examine such anomalies. We show that it is demand revealing in the presence of social preferences and empirically consistent with dichotomous choice voting. Laboratory experiments involving 440 subjects show that when net benefits are homogeneously distributed, the new RPVM is demand-revealing in both willingness-to-pay (WTP) and willingness-to-accept (WTA) settings, for both gains and losses. When the voting outcome potentially results in a heterogeneous distribution of (net) benefits, a systematic wedge appears between individuals' controlled induced values and their revealed WTP or WTA. With induced gains, the best-off subjects under-report their WTP and WTA in comparison to their induced value. Worst-off subjects express WTP and WTA that exceed their induced value. With induced losses a mirror image is evident. Best-off subjects over-report their induced value while the worst-off subjects under-report. Theoretical and econometric results presented in the paper suggest that these differences are caused by a concern for social efficiency.Institutional and Behavioral Economics,