An Experimental Investigation of Delegation, Voting, and the Provision of Public Goods

We explore a possible solution to the free-rider problem involving the delegation of individual contribution decisions to an elected agent. Our first experiment demonstrates that when delegation is an exogenously imposed institution, it results in the efficient full contribution outcome, primarily because groups elect pro-social agents to make the allocation decisions and replace those who do not implement full contribution outcomes. However, we also observe outcomes in which a minimum winning coalition exploits the contributions of the remaining players. Our second experiment demonstrates that when delegation is endogenous, individuals voluntarily cede authority to an elected agent, but only when pre-play communication is permitted. Our combined results demonstrate that delegation can help groups overcome the freerider problem, even though free-riding incentives still exist under the mechanism. ∗ Thanks to participants at the 2008 Midwest Political Science Association conference, the 2008 North American Economic Science Association Mettings, the 2008 American Political Science Association conference, and to seminar participants at several locations for valuable comments and suggestions. Jonathan Woon thanks the Berkman Faculty Development Fund at Carnegie Mellon University for their financial support of the project. 2 Social scientists have long recognized individuals’ strong incentives to “free ride” from the contributions of others when public goods are provided through decentralized, voluntary institutions (Lindahl 1919, Samuelson 1954, Olson 1965, Hardin 1968, Dawes 1980). An implication of such individual incentives is that society will tend to under-produce public goods and sometimes even fail to produce them at all. One justification for government is that it can solve the free-rider problem by using its coercive power—as in Hobbes’ Leviathan—whereby citizens cede or delegate decision-making to a centralized authority. Indeed, governments provide a variety of public goods ranging from security (national defense, anti-terrorism, police services), to public spaces (libraries and parks), to infrastructure (roads and highways). However, in contrast to Hobbes’ ideal vision of an absolute sovereign, central decision-makers in modern democratic governments only wield their power temporarily since regular elections give citizens the opportunity to select new leaders. We conduct two laboratory experiments to investigate the effects of delegation and voting on the provision of public goods. Our first experiment contrasts situations in which individuals independently decide how much to contribute to the public good (i.e., the canonical voluntary contribution mechanism), with a delegation mechanism in which individuals instead decide who should make allocation decisions for them. Thus, the group delegates authority by electing one of its members to determine the contributions of each member to a public good, including the possibility of asymmetric allocations. This process is repeated in every period. Our design captures two essential features of modern delegated democracies. First, once elected, a government official is not bound to take any particular action or choose any particular 1 We use the term “delegated democracy” to include both delegation to a single individual or executive as well as to a legislative body in order to distinguish it from “representative democracy,” which typically refers to the latter. In contrast, a “direct democracy” involves citizens proposing and voting directly on proposals and does not involve any form of delegation. 3 policy. Thus, there is the possibility that an official acts opportunistically for his or her own personal gain (or the gain of a subset of citizens) at the expense of the public at large. Second, an official’s power is held only temporarily and continues only if the public collectively chooses to re-elect the official. Thus, repeated elections may provide sufficient incentives for officials to act in the public’s interest rather than in their own private interest (Barro 1973; Ferejohn 1986). We find that such delegation almost always yields outcomes very close to the socially optimal level of the public good, in contrast with the no-delegation (VCM) case in which we observe significant levels of free riding. Groups in our experiment typically achieve the socially optimal outcome by identifying the most “socially-oriented” individuals (who voluntarily contribute the most when delegation is not possible) and granting them the power to determine collective outcomes. When allocators attempt to exploit their position by forcing others to contribute fully while contributing nothing themselves (consistent with the unique equilibrium of the one-period game), they are almost always removed from office in the next period. However, we also observe instances in which the elected allocator appeals to a majority of players in the game and exploits the contributions of the remaining minority of players. This “majority tyranny” outcome yields greater inequality than when none of the public good is provided at all, and also leaves those excluded from the majority with lower earnings than they would likely obtain without delegation. Thus, while our results generally support the beneficial effects of delegation on welfare, they also highlight an important trade-off: majority tyranny might arise when decisions are delegated to a centralized authority, but it cannot when individuals retain complete liberty over their contribution decisions. In our first experiment, delegation solves the free rider problem despite the potential for opportunistic gain by elected agents, but the problem is solved by exogenously imposing a 2 See McGuire and Olson (1996) and Falaschetti and Miller (2001) for theoretical analyses. 4 centralized decision-making institution. In our second experiment, we therefore turn to the question of whether individuals will voluntarily cede the right to make individual decisions. This is an important question because the voluntary decision to submit to a centralized political institution is itself subject to a free rider problem. We introduce an endogenous delegation mechanism where subjects first choose to opt in or opt out of centralized decision-making in each period. Those who opt-in elect an allocator and are bound by the allocator’s decision while those who opt-out make their own individual contribution decisions. Rules regarding the production of the public good remain the same so that players opting out of the delegation mechanism benefit from any public good provided by the allocator’s decision and vice versa. We find that when players cannot communicate prior to making decisions in the endogenous delegation mechanism, few agree to delegate and contributions converge to zero just as in the VCM. However, when pre-play discussion is possible, half of the groups voluntarily opt for the delegation mechanism and sustain outcomes close to full efficiency. Communication appears to work in conjunction with endogenous delegation because it provides a means for coordination and fosters trust, which encourages individuals to cede the right to make independent decisions to an elected allocator. While we also find that communication encourages higher levels of initial contributions under the VCM, it is not nearly as effective at producing full contributions nor is it able to sustain higher contributions for very long. Related Literature There is a vast experimental literature on the provision of public goods by voluntary contributions (e.g., Andreoni 1988; Dawes et al 1986; Ostrom et al 1992; Fehr and Gachter