Students / Subjects

# Classroom Experiments on Public Goods

Classroom experiments are beneficial as they may be used to illustrate the differences between the Pareto Optimal and the Nash Equilibrium outcomes, which are on opposite ends of the spectrum. In addition, "free-riding" if often exhibited as rational behavior, pushing subjects toward the Nash Equilibrium. The following sections will outline the currently available public goods experiments.

### Available Software

Manual Experiments

EXPERNOMICS

### Paper-based VCM game

To conduct this experiment a deck of cards is required. Having obtained the deck of cards, distribute four cards to each participating student in the classroom. Give them two red cards and two black cards. After giving each student the four cards they are instructed that they must give you two cards of their choosing and that their payoff is determined as follows:

Earnings = \$4*(the number of red cards kept) + \$1*(the total number of red cards collected)

Having instructed them how their payoff is calculated, give them a few minutes to make their decisions and when it appears as though everyone is ready to continue go around the room and collect two cards from each student. By construction, the black cards do not affect an individual's earnings yet allow them to "free ride" on the other's contributions. After receiving everyone's cards count the number of red cards and annouce the total collected to the group. This is used to determine their individual earnings from the public good contributions.

To advance to the next round return the cards in reverse order to assure that everyone receives the same two cards that they gave in the initial round. When this is done ask the subjects to make their decisions for the next round and when it appears they are all ready collect the cards one more time. After conducting the experiment for a number of periods it is recommended that you conduct the experiment again for the same number of periods but allow for the students to communicate with each other before they make their individual card decisions. This should decrease the amount of "free riding" compared to the earlier periods when they were not allowed to communicate. In addition, increasing the multiple on the total number of red cards received, currently \$1, should increase the contribution level.

The description for this classroom experiment has been extracted from a research paper written by Charles Holt and Susan Laury in the Journal of Economic Perspectives (Holt and Laury, 1997). Within this paper they have a one-page instruction sheet that may be used to facilitate this experiment. Those interested should obtain a copy of this research paper or refer to the "Voluntary Provision of a Public Good" - classroom game paper by the same authors.

Free-rider problem: Time-effective game to illustrate the free rider problem.