Jubo Yan
Kent Messer
University of Delaware
Jordan Suter
Oberlin College



Externality - environmental, public health,
and other social problems
Not from the direct actions of malign
individuals
Arise indirectly from benign people’s selfinterested behavior


Standard Economic Theory -- a bleak
assessment of outcome given voluntary
behaviors
Behavioral Economics -- the context may be
an effective tool to reduce the pervasiveness
of negative externalities.



Contributing to a public good
Incurring a negative externality on the other
group-members
MPCR=1/2=0.5
Positive Framing vs. Negative Framing
100%
90%
80%
Contribution
70%
Positive
60%
50%
Negative
40%
30%
20%
10%
0%
1
2
3
4
5
6
Round
7
8
9
10

Public good problem can be improved or even
overcome in a laboratory setting

Introducing a variety of real world contexts to the
decision setting
◦ Voting: A confidential majority vote between two options
(Group Account & Private Lottery)
◦ Cheap Talk: An open discussion with group members up
to ten minutes
◦ Status Quo: Money is initially allocated in the Group
Account

Individual Account: Return Rate 1

Group Account: Return Rate 1.5

MPCR=1.5/7=0.214
1.5
1.5
 i  xi 
gi 
gj

7
7 j i
No Status Quo without Voting and Cheap Talk
100%
90%
80%
70%
Donation
60%
50%
Positive
40%
30%
No Status Quo
20%
10%
0%
1
2
3
4
5
6
Round
7
8
9
10
Status Quo without Voting and Cheap Talk
100%
90%
80%
70%
Status Quo
Donation
60%
50%
Positive
40%
30%
No Status Quo
20%
10%
0%
1
2
3
4
5
6
Round
7
8
9
10
No Status Quo with Voting and Cheap Talk
100%
90%
80%
70%
Status Quo
No Status Quo with Voting and Cheap Talk
Donation
60%
50%
Positive
40%
30%
No Status Quo
20%
10%
0%
1
2
3
4
5
6
Round
7
8
9
10
Status Quo with Voting and Cheap Talk
100%
90%
Status Quo with Voting and Cheap Talk
80%
70%
Status Quo
No Status Quo with Voting and Cheap Talk
Donation
60%
50%
Positive
40%
30%
No Status Quo
20%
10%
0%
1
2
3
4
5
6
Round
7
8
9
10




Group size: 7
Number of rounds: 20 (predetermined but not
announced)
Account A: No externality; Return rate 1.5
Account B: Externality; Return rate 2.5 with
Externality



Status Quo: Money initially allocated in Account A
Subjects are given one dollar at the beginning of
each round (in Account A or in Account B)
MPCR=1.5/7=0.214
 i  xi 
 xi 
1.5
1.5
gi 
(1  x j )

7
7 j i
1.5
1.5
9
gi 
x

 j 7
7
7 j i
1.5
 2.5 xi  1.5 gi 
x

7
EXPECTATION


Cheap Talk and Voting together can eliminate
the negative externality problem on some
level
The Contribution Rate is lower than Messer et
all 2007 according to the conclusion in
Andreoni 1995
No Status Quo without Voting and Cheap Talk
100%
90%
80%
Contribution
70%
60%
50%
40%
30%
20%
10%
Negative
No Status Quo
0%
1
2
3
4
5
6
7
8
9
10
11
Round
12
13
14
15
16
17
18
19
20
Status Quo without Voting and Cheap Talk
100%
90%
80%
Contribution
70%
60%
50%
Status Quo
40%
30%
20%
10%
Negative
No Status Quo
0%
1
2
3
4
5
6
7
8
9
10
11
Round
12
13
14
15
16
17
18
19
20
No Status Quo with Voting and Cheap Talk
100%
90%
80%
Contribution
70%
No Status Quo with Voting and Cheap Talk
60%
50%
Status Quo
40%
30%
20%
10%
Negative
No Status Quo
0%
1
2
3
4
5
6
7
8
9
10
11
Round
12
13
14
15
16
17
18
19
20
Status Quo with Voting and Cheap Talk
100%
90%
80%
Contribution
70%
No Status Quo with Voting and Cheap Talk
60%
50%
Status Quo with Voting and Cheap Talk
Status Quo
40%
30%
20%
10%
Negative
No Status Quo
0%
1
2
3
4
5
6
7
8
9
10
11
Round
12
13
14
15
16
17
18
19
20
Positive vs. Negative (No Status Quo)
100%
90%
80%
Contribution
70%
60%
Positive from Messer et all
50%
40%
30%
20%
10%
Negative from our experiment
0%
1
2
3
4
5
6
Round
7
8
9
10
Positive vs. Negative (Status Quo)
100%
90%
80%
Contribution
70%
Positive from Messer et all
60%
50%
40%
30%
20%
Negative from our experiment
10%
0%
1
2
3
4
5
6
Round
7
8
9
10
Positive vs. Negative (No Status Quo with V&C)
100%
Positive from Messer et all
90%
80%
Contribution
70%
Negative from our experiment
60%
50%
40%
30%
20%
10%
0%
1
2
3
4
5
6
Round
7
8
9
10
Positive vs. Negative (Status Quo with V&C)
100%
90%
Positive from Messer et all
80%
Contribution
70%
Negative from our experiment
60%
50%
40%
30%
20%
10%
0%
1
2
3
4
5
6
Round
7
8
9
10



Voting and Cheap Talk can largely eliminate
the externality problem
The effect of Status Quo is different with V&C
and without V&C which also requires future
works
The difference between the positive and
negative frameworks diminishes from round
to round without Voting and Cheap Talk
Thank you!
Any Questions or comments?
1.5
1.5
 i  xi 
gi 
(1  x j )

7
7 j i
1.5
1.5
9
 xi 
gi 
xj 

7
7 j i
7
8.5
1.5
1.5
9

xi 
gi 
x 

7
7
7
7
7.5
10.5
9
9
1.5
9

xi 
gi  ( xi  gi ) 
x 

7
7
7
7
7
7
7.5
10.5
9
1.5
9

xi 
gi  ( xi  gi ) 
x 

7
7
7
7
7
7.5
10.5
9 1.5
9

xi 
gi  
x 

7
7
7 7
7
1.5
 2.5 xi  1.5 gi 
x

7