Three experiments on providing and valuing threshold public goods with alternative rebate rules

Michael Andrew Spencer, University of Rhode Island

Abstract

This dissertation considers the use of rebate rules in providing and valuing threshold public goods. Threshold public goods are also known as provision point, binary, or step-level goods because they cannot be provided in part, but only in whole after a certain cost (or threshold) is covered. Lighthouses, bridges, and specific plots of land for conservation programs represent examples of threshold public goods. Rebate rules govern the use of any excess contributions collected beyond the threshold cost. The fate of excess contributions can affect one's willingness to contribute to a public good. ^ The original motivation for this study comes from a need to develop better real-money benchmarks from which to assess hypothetical bias in the contingent valuation method (CVM), whereby economists use written surveys to ask people how much they would hypothetically be willing to pay (WTP) to provide a public (environmental) good. The CVM is often criticized for being susceptible to hypothetical bias (i.e., a situation in which people overstate their true WTP for a public good) because individuals may not fully appreciate the financial costs in a hypothetical decision. However, if asked to voluntary contribute real-money to help fund a public good, people may tend to understate their true WTP in the hopes of free riding off the contributions of others. Thus, tests of hypothetical bias in the CVM using a voluntary contribution mechanism (VCM) may lead to an exaggerated measure of hypothetical bias. We develop an argument for the usefulness of rebate rules in providing reasonable measures of real-money WTP. ^ The dissertation consists of three manuscripts. The first two manuscripts empirically investigate the demand revealing behavior of several rebate rules under controlled laboratory conditions with induced values. Based on the lessons learned in the first two manuscripts and other public good experiments, the third manuscript uses the rebate rules in assessing the difference between hypothetical and real-money contribution behavior to a deliverable environmental good. We find differences in contribution behavior between the money treatments, but some rebate rules appear promising in narrowing the difference. ^

Subject Area

Economics, General|Economics, Agricultural|Environmental Sciences

Recommended Citation

Michael Andrew Spencer, "Three experiments on providing and valuing threshold public goods with alternative rebate rules" (2002). Dissertations and Master's Theses (Campus Access). Paper AAI3078005.
http://digitalcommons.uri.edu/dissertations/AAI3078005

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