Analysing Group Contract Design Using a Lab and a Lab-in-The-Field Threshold Public Good Experiment

Abstract

This paper presents the results of a threshold public goods game experiment with heterogeneous players. The experiment is designed in close collaboration with the Dutch association of agri-environmental farmer collectives. Subjects are recruited at a university (“the lab”) and a farm management training centre (“lab-in-the-field”). The treatments have two different distribution rules which are varied in a within-subjects manner. After subjects have experienced both, they can vote for one of the two rules: either a differentiated bonus that results in equal payoff for all, or an undifferentiated, equal share of the group bonus. In a between-subjects manner, subjects can vote for a (minimum or average) threshold or are faced with an exogenous threshold. The results indicate that exogenous thresholds perform better, possibly because the focal point they provide facilitates coordination. With regard to the two distribution rules, the results are mixed: average contributions and payoffs are higher in the lab under the ‘equal-payoff’ rule, but there is no significant difference between the two in the lab-in-the-field, possibly because contributions in the lab-in-the-field are much less efficient. Overall, our results suggest that environmental payment schemes should not only consider farmer heterogeneity in the design of group contracts, but pay explicit attention to coordination problems as well.

Keywords: threshold public goods games, endogenous choice, lab-in-the-field experiment, collective agri-environmental management, group contracts, distribution rules, heterogeneous subjects

JEL Classification: H41, C92, C93, D70, Q57