EXPERIMENTAL STUDY OF GROUP DECISION-MAKING IN PRICING PUBLIC GOODS

FABRICE NICOLAS QUESNEL, Purdue University

Abstract

The thrust of this study concerned an experimental assessment of the potential for a multi-part pricing system (system C, adapted from Clarke) to eliminate strategic behavior regarding the demand for public goods. A voluntary type auction was designed as a strong free-rider incentive mechanism which permitted strategic behavior without penalty. It provided a control against which system C was compared. The experimental procedures involved a bidding game which was submitted to two sets of subjects with diverse socio-economic backgrounds. The subjects were given a questionnaire which contained all the possible combinations of the main treatments. The main effects were the pricing system, the reward level, the group size and the type of public fund. Each effect was set at two levels. The response variable was the subject's willingness to pay (bid) in a given situation. The theoretical pricing systems were analyzed in a controlled experimental design. The specific objectives were to (1) analyze the ability of system C to deter strategic behavior and (2) determine if the main effects were a significant cause of variation in decision making. The internal validity of the mixed analysis of variance models were evaluated in terms of the significance of the treatments based on a completely randomized balanced sample of two groups of 64 subjects each. All main effects were significant at the 0.05 level, on the average, with the exception of the effect due to the type of public good. System C led to significantly greater demand relevations (bids) than did system V and was not affected by the type of public fund. Bids under system C were affected by the reward incentive level, the size of the group, and the social status of the subjects. System C did inhibit strategic behavior.

Degree

Ph.D.

Subject Area

Agricultural economics

COinS