The ratchet effect in social dilemmas


Gallier, Carlo ; Sturm, Bodo


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URL: https://madoc.bib.uni-mannheim.de/55375
URN: urn:nbn:de:bsz:180-madoc-553752
Document Type: Working paper
Year of publication: 2020
The title of a journal, publication series: ZEW Discussion Papers
Volume: 20-015
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C72 , C92 , H41,
Keywords (English): Public goods , dynamic incentives , minimum contribution rules , ratchet effect
Abstract: In this paper, we investigate whether dynamic incentive schemes lead to a ratchet effect in a social dilemma. We test whether subjects strategically restrict their contribution levels at the beginning of a cumulative public goods game in order to avoid high obligations in the future and how this affects efficiency. The incentive schemes prescribe that individual contributions have to be at least as high as, or strictly higher than, contributions in the previous period. We observe a substantial and statistically significant ratchet effect. Participants reduce their public good contribution levels at the beginning of the game, anticipating that higher contributions imply higher minimum contribution levels in the future, which increases the risk of being exploited by freeriders. While the dynamic incentive schemes lead to increasing contribution levels over the course of the game, this increase is not strong enough to compensate the efficiency losses at the beginning.

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Gallier, Carlo ; Sturm, Bodo (2020) The ratchet effect in social dilemmas. Open Access ZEW Discussion Papers Mannheim 20-015 [Working paper]
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