Local Institutions and the Dynamics of Community Sorting (2014) American Economic Journal: Microeconomics, 6(3): 136-156. [abstract] [paper]
Abstract: This paper studies the dynamics by which populations with heterogeneous preferences for local public good provision sort themselves into communities. I conduct laboratory experiments to consider which institutions may best facilitate efficient self-organization when residents are able to move freely between locations. I find that institutions requiring all residents of a community to pay equal taxes enable subjects to sort into stable, homogeneous communities. However, populations can find themselves stuck at inefficient local equilibria. Though sorted, the community may fail to attain the level of public good provision best suited for them and the system dynamics are crucial for determining whether subjects reach optimally-designed communities. When residents are able to vote for local tax policies with their ballots as well as with their feet, the inefficient local equilibria are eliminated, and each community converges to the most efficient outcome for its population. [hide]
Voting with Hands and Feet: The Requirements for Optimal Group Formation (2015) Experimental Economics, 18(3): 522-541. [abstract] [paper]
Abstract: This paper studies the dynamics by which individuals with heterogeneous preferences partition themselves into groups. A novel experimental environment is developed to capture the tension between increasing returns to group size and attaining a group policy closest to an ideal point. Subjects can move freely between locations, with group policy either fixed by location or determined by member vote. A primary goal is to assess which of two stability concepts common to the group formation literature predicts which groups agents sort into. The same set of Nash stable partitions exist in each condition, with the efficient, strong Nash stable state requiring subjects to form heterogeneous groups and compromise on policy. I find that subjects who are only able to move between locations with fixed policies always over-segregate, rather than build efficient heterogeneous groups. When mobility is combined with the ability to vote on local policy, most subjects reach the efficient partition. This shows outcomes cannot be determined by considering the existence of stable states alone and that consideration must also be given to subtle aspects of the system dynamics. Further, it suggests that experiments may play an important role in understanding these group formation dynamics. [hide]
Abstract: This paper studies the dynamics of community formation when members differ substantially in their returns from voluntary local public good provision. Laboratory experiments are conducted to examine how agents relocate in response to both community provision and membership composition, as well as how the growth and stability of communities are dictated by moving costs and crowding. When the public good is congestible, such that returns are lower for larger populations, I find communities are characterized by instability, cyclical fluctuations in local provision, and a dynamic in which low demanders continually chase high demanders through locations. When congestion is eliminated, subjects with different returns do sometimes co-exist. Yet chronic, inefficient movement persists, suggesting that instability is driven by intrinsic preferences for community composition, as well as by sensitivity to congestion. [hide]
Revenue Implications of Strategic and External Auction Risk (2016) Games, 7(1), 5, with Michael K. Graham and Peter Hans Matthews [abstract] [paper]
Abstract: Two experimental treatments are used to study the effects of auction risk across five mechanisms. The first canonical, baseline treatment features only strategic risk and replicates the standard results that overbidding relative to the risk neutral Nash equilibrium is prevalent in all common auction mechanisms except for the English auction. We do not find evidence that bidders' measured risk preferences can explain these patterns of overbidding. To enhance salience, we introduce a second novel treatment with external risk. This treatment captures the risk, prevalent in online auctions, that winners will not receive a good of value. We find that dynamic auctions -- including the English -- are particularly susceptible to overbidding in this environment. We note that overbidding is somewhat diminished in later periods and that our results may thus have particular relevance for bidders who are not highly experienced or who have not directly experienced losses. We conclude with a brief discussion of research implications. [hide]
Sustaining Cooperation in Heterogeneous Groups (2016) Journal of Economic Behavior and Organization, 132: 121-138. [abstract] [paper]
Abstract: The public goods game has been studied extensively in the lab as the quintessential model of a social dilemma. Several mechanisms have been demonstrated to promote group cooperation in linear voluntary contribution experiments - such as communication, costly punishment, and centralized bonuses and fines. However, lab experiments have largely neglected a central obstacle to efficient public good provision: Individuals typically have different, private demands for consumption, hindering the ability of either a central authority or the group members themselves to calculate and enforce the optimal behavior. I adapt the standard public goods game to incorporate heterogeneous incentives and provide an assessment of each mechanism in this richer environment. I find that baseline cooperation is similar to that in the standard linear game. Sanctions are weak and generally ineffective. Communication, however, does promote cooperation, especially when subjects are given the opportunity to reveal their demand or demand is observable. Finally, a centralized fine/bonus scheme is most effective at increasing contributions, but low demanders must pay a fine in equilibrium. [hide]
Compensating Differentials in Experimental Labor Markets (2017) Journal of Behavioral and Experimental Economics, 69: 50-60, with Jeffrey Carpenter and Peter Hans Matthews [abstract] [paper]
Abstract: The theory of compensating differentials has proven difficult to test with observational data: the consequences of selection, unobserved firm and worker characteristics, and the broader macroeconomic environment complicate most analyses. Instead, we construct experimental, real-effort labor markets and offer an evaluation of the theory in a controlled setting. We study both the wage differentials that evolve between firms with varying degrees of disamenity and how these differentials are affected by worker mobility and therefore selection. Consistent with the theory, we find that riskier firms must pay significantly higher wages to attract workers. Further, when workers are mobile, they sort into firms according to their attitudes towards risk and, as a result, the compensating differential shrinks. Last, we are also able to mimic the biases associated with observational studies. [hide]
Collaboration and Free-riding in Team Contests (2017) Labour Economics, 49: 162-178, with Mürüvvet Büyükboyacı [abstract] [paper]
Abstract: The organization of team contests can enhance productivity if teammates with complementary skills are able to allocate the team’s tasks efficiently, but can also suffer from free-riding incentives. We report the results of a real-effort experiment in which production requires the completion of two complementary tasks, at which workers have heterogeneous skills. We vary whether participants: compete individually; compete in teams where each member must complete each task; or compete in teams where the agents can divide tasks between them and potentially specialize in the task they do best. We report three main results. First, individuals who must work alone divide their work time in a way that is qualitatively consistent with the theoretical predictions, but allocate too little time to their weaker task. Second, there is no difference in productivity or free-riding behavior between individual contests and team contests where teammates cannot specialize. Finally, and most notably, when teammates can divide work tasks, they allocate more time to the tasks they are best at and experience a strong productivity gain. This is true even among teams that cannot communicate – despite the potential for coordination failure or coordination on Pareto dominated equilibria – but the effect is strongest when communication is available. [hide]
Profit Sharing and Peer Reporting (2018) Management Science, 64(9): 4261-4276, with Jeffrey Carpenter and Prottoy Akbar [abstract] [IZA Discussion Paper No. 9946]
Abstract: Despite the "1/N problem" associated with profit sharing, the empirical literature finds that sharing profits with workers has a positive impact on work team and firm performance. We examine one possible resolution to this puzzle by observing that, although the incentive to work harder under profit sharing is weak, it might be sufficient to motivate workers to report each other for shirking, especially if the workers are reciprocally-minded. Our model provides the rationale for this conjecture and we discuss the results of an experiment that confirms that profit sharing is most effective when peer reporting is possible. [hide]
Partisan Bias and Expressive Voting (2018) Journal of Public Economics, 157: 107-120, with Peter Hans Matthews [abstract] [working paper]
Abstract: We conduct an experiment to characterize the “expressive” voting behavior of political partisans. We find that participants who are asked to vote on the answer to factual questions tend to offer more partisan responses than those who must answer as decisive individuals. We further test whether voters exploit corrective information that sometimes challenges their partisan views. When information is available, we observe smaller partisan gaps and more correct responses, especially when the information is free. When information is costly to acquire, we find that voters generally choose to remain uninformed, consistent with the Downsian theory of rational ignorance. [hide]
Team Formation with Complementary Skills (2019) Journal of Economics and Management Strategy, 28(4): 713-733, with Mürüvvet Büyükboyacı [abstract] [paper]
Abstract: One explanation for the prevalence of self‐managed work teams is that they enable workers with complementary skills to specialize in the tasks they do best, a benefit that may be enhanced if workers can sort themselves into teams. To assess this explanation, we design a real‐effort experiment to study the endogenous formation of teams, and its effect on productivity, when specialization either is or is not feasible. We find a strong positive interaction between endogenous team formation and the ability to specialize, indicating that endogenous team formation is a particularly effective mechanism for promoting team output in production environments that enable the exploitation of skill complementarities. [hide]
Group Formation and Cooperation in Social Dilemmas: A Survey and Meta-Analytic Evidence (2019) Journal of Economic Behavior and Organization, 159: 192-209, with Andrea Guido and Rustam Romaniuc [abstract] [paper]
Abstract: We survey the growing literature on group formation in the context of three types of social dilemma games: public goods games, common pool resources, and the prisoner’s dilemma. The 62 surveyed papers study the effect of different sorting mechanisms – endogenous, endogenous with the option to play the game, and exogenous – on cooperation rates. Our survey shows that cooperators are highly sensitive to the presence of free-riders, independently of the sorting mechanism. We complement the survey with a meta-analysis showing no difference in terms of cooperation between studies implementing an endogenous and exogenous sorting. What is more, we find that it is no more likely for a cooperator to be matched with like-minded partners in endogenously formed groups than in exogenously formed groups. These observations are related. As we show in the survey, the success of a sorting method in matching like-minded individuals and the levels of cooperation are closely interlinked.[hide]
Just Ask: Preference Revelation and Lying in a Public Goods Experiment (2019) Journal of Economic Behavior and Organization, 165: 118-135 [abstract] [paper]
Abstract: This paper studies the extent to which simply asking group members to report their demand-type promotes cooperation in a public goods experiment with private, unobservable incentives. The design uses a simple public goods game, in which group members differ in both their dominant strategy contributions and socially optimal contributions. Treatments are conducted in which individuals either do not report their private payoff information, report only to group members, report to group members who can punish them, or report to a binding mechanism that charges them the socially optimal contribution for their message. In all cases, messages are non-verifiable and participants are told that they are free to lie. When participants are able to report their type, either to their group members or to a binding mechanism, they contribute more. Further, the misreporting of type is less frequent, considered more dishonest, and punished more harshly than free-riding. Consistent with work showing that weak punishment can backfire, the punishment mechanism is underutilized in this environment and its presence negates the positive effect of sharing information. [hide]
A Taste for Taxes: Minimizing Distortions Using Political Preferences (2019) Journal of Public Economics, 180: 104055, with Emiliano Huet-Vaughn and Matthew Spitzer [abstract] [paper]
Abstract: We conduct an experiment with online workers to assess whether the distortionary effect of a tax is sensitive to the ideological match between taxpayer and tax expenditures. We find that, among self-identified political moderates, the labor supply elasticity with respect to the net of tax wage is significantly smaller when individuals pay taxes to a favored government agency as compared to an unfavored one. While the tax has a significant distortionary effect in the latter case, with a point estimate for the labor supply elasticity of approximately 0.75, the elasticity point estimate is virtually zero when taxes go to a favored agency. There is also an increase in total output for the matched population. There is no evidence of a similar effect for those on the ends of the ideological spectrum. [hide]
Choice Architecture to Improve Financial Decision Making (Forthcoming) Review of Economics and Statistics, with Jeffrey Carpenter, Emiliano Huet-Vaughn, Peter Hans Matthews, Dustin Beckett, and Julian Jamison [abstract]
Abstract: We exploit the principles of choice architecture to evaluate interventions in the market for reloadable prepaid cards. Participants are randomized into three card menu presentation treatments - the market status quo, a regulation-inspired reform, or an enhanced policy designed to minimize attribute overload - and offered choices based on prior structural estimation of individual preferences. We find consumers routinely choose incorrectly under the status quo, with tentative evidence the regulation-inspired presentation may increase best card choice, and clear evidence the enhanced policy reduces worst card choice. Welfare analysis suggests the regulation-inspired presentation offers modest gains, while the enhanced policy generates substantial benefits. [hide]
The Elasticity of Trust: How to Promote Trust in the Arab Middle East and the United States (2012). With Iris Bohnet, Benedikt Herrmann, Mohamad Al-Ississ, Khalid Al-Yahya, and Richard Zeckhauser. In “Restoring Trust in Organizations and Leaders: Enduring Challenges and Emerging Answers,” eds. Roderick M. Kramer and Todd L. Pittinsky. New York: Oxford University Press, 2012, 151-160. [abstract] [link] [working paper]
Abstract: To trust is to risk. When we lend someone money, we make ourselves vulnerable, hoping or expecting that the borrower will reward our trust and return the money at a later stage, possibly with interest or a reciprocal favor added. Generally, people are more willing to engage in a risky activity, such as buying a stock or starting a business, the greater the expected returns from the activity. This paper examines whether willingness to trust follows the same logic, that is, whether it responds to changes in the expected value of trusting, much like willingness to take risk responds to changes in the expected value of risk taking, in various countries of the Arab Middle East, namely, Jordan, Saudi Arabia and the United Arab Emirates and in the United States. [hide]