Online Communication and Information Disclosure in Common
Pool Dilemmas
Coady Wing and Stephan Schott
Carleton University
E-mail: coady.wing@gmail.com
sschott@connect.carleton.ca
THIS IS PRELIMINARY WORK-PLEASE DO NOT QUOTE
May 12, 2006
CEA Meetings 2006
Montreal

CEA Meetings 2006
I. Introduction
Coady Wing & Stephan Schott
The research by Isaak and Walker (1988), Ostrom, Walker and Gardner (1992, 1994) and many others has demonstrated the power of face-to-face communication in common pool resource extraction problems and has challenged traditional command and control approaches to the regulation and management of many natural resources. The experimental literature shows that groups that repeatedly interact with each other face-toface are often successful in overcoming commons and other social dilemmas. When communication is costly, experimental groups rarely communicate repeatedly: in the majority of sessions groups communicate only once and efficiency is lower than with repeated communication.
One of the central conclusions of research on communication in laboratory experiments is that external agents are not necessary to achieve high levels of collective action, even when players make repeated anonymous and private decisions and even if they cannot establish a well-defined community (Gardner et al., 1994). The laboratory, however, acts a bit like an institution that brings actors together and enables them to engage in face-to-face communication. To some extent this can be interpreted as a form of community-building, and, therefore challenges some of the key findings of communication as a collective action device. Face-to face communication often can prove to be very costly, especially for large groups of resource users and polluters. In some cases such meetings are simply not feasible. In an era in which people are increasingly accustomed to electronic communication, and in which information technology has drastically lowered the cost of information dissemination, online
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CEA Meetings 2006 Coady Wing & Stephan Schott institutional frameworks could play a crucial role in the management of a variety of public problems.
Communication as a collective action instrument also raises another question:
What information should be revealed to actors; information about each individual actor’s decisions and payoffs or should information be restricted to aggregate figures?
Information disclosure has not really been evaluated as a distinct treatment variable in
CPR experiments. Ostrom et al. (1992) only evaluate it in the first 10 periods of a 32 period sanctioning treatment and found no difference in comparison to a baseline experiment in which participants only received aggregate information about total contribution levels and average payoffs. Sanctioning was found to have strong impacts on individual behaviour, particularly as it enhances cooperation but also induces excessive punishing, and, therefore reduces efficiency compared to sessions without sanctioning. We show that the type of information revealed to participants and actors will reduce efficiency and induce what can be considered implicit punishing of others.
Participants forego payoffs in order to reduce other subjects’ payoffs by overcontributing to the CPR above the payoff maximizing choice.
This paper investigates the effectiveness and efficiency of endogenous online communication and information disclosure in a common pool resource environment through an internet-based experiment. A web-based experiment was chosen in order to make communication costly and endogenous, and to provide a realistic information disclosure mechanism. Laboratory experiments have shown that E-mail communication can be effective but not as effective as face-to face communication in a Prisoner’s
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CEA Meetings 2006 Coady Wing & Stephan Schott
Dilemma game, when communication is costless (Frohlich and Oppenheimer, 1998). We evaluate costly endogenous E-mail communication (due to true opportunity cost of time spent E-mailing others while not in an experimental lab) in a common pool resource environment. As opposed to Frohlich and Oppenheimer we allow communication to occur any time during the experiment and we observe both “bilateral” or private communication as well as communication with the entire groups and with subgroups. Email communication has furthermore not been tested in a CPR environment before, only costly face-to-face communication (Ostrom et al., 1994).
Anderhub and Schmidt (2001) have evaluated the difference between identical experiments in the laboratory and on the internet. They did not find a significant difference in the results between the two environments. They also highlighted the opportunities of web-based experiments, particularly the fact that they enable “double blindness” between experimenter and subject. Decisions in a web-based environment can be done asynchronously which provides subjects and experimenter flexibility and sufficient time to understand the experimental environment and the behaviour of subjects.
As opposed to previous experiments for common pool resources, communication in our experiment is not limited to the provision of a public good (the face-to face meeting).
The communication pattern is endogenously chosen by participants and enables anonymous groups communication as well as one-on-one communication, which is, in many ways, more realistic than in anonymous face-to-face communication in the laboratory.
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CEA Meetings 2006 Coady Wing & Stephan Schott
In the theory section of the paper we first derive the standard symmetric payoff maximizing Nash equilibrium and a second symmetric relative payoff maximization
Nash equilibrium. The least efficient outcomes (that are consistently above the payoff maximizing Nash solution) are reached with full disclosure about other participants’ behaviour and no communication, and are consistent with our relative payoff maximizing
Nash. Our results indicate that information disclosure is a significant treatment variable, particularly in the no communication rounds. Online communication significantly raises cooperation and increases payoffs. Communication, however, does not always occur, and the communication treatment alone is not significantly different from the no communication treatment. When full disclosure of individual decisions is paired with communication two effects are observed: (1) Full disclosure partially offsets the positive effects of communication. (2) Communication is more likely to occur than in rounds where only average contribution is disclosed. Communication and full disclosure, therefore, might on average lead to the same outcome as without full disclosure, but disclosure of average results causes more uncertainty in outcomes. If subjects elect to communicate they are better off without full disclosure. Full disclosure without communication, on the other hand, results in very poor payoffs, which makes it more likely and profitable that subjects will engage in communication to increase payoffs.
II. Experimental Theory and Previous Findings in Controlled Laboratory
Experiments
The experiment examines a standard limited access common pool resource (CPR) problem. There is a limited number (n) of appropriators who have a fixed endowment of
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CEA Meetings 2006 Coady Wing & Stephan Schott tokens each period (e). The tokens can be invested at a constant rate ‘w’ representing the opportunity cost of investing into the extraction from the CPR. The latter is modeled through two markets: market 1 is the CPR with a return that depends on the decisions of all resource users, while market 2 has a constant fixed return independent of other’s decisions. Participants, therefore, face the following payoff ( π i
):
Π i
= ( e − x i
) w +
∑ x i x i
F ( ∑ x i
) (1) where x i
=individual i’s contribution to market 1 (representing extraction effort in the
CPR), and F (
x i
) represents a harvest, yield-effort or production function.
The socially optimal aggregate contribution to market 1 (X * ) is reached when the group
€
π
) is maximized:
Π = nwe − w ∑ x i
+ F ( ∑ x i
) (2)
As long as F is a concave function we can derive a unique socially optimal solution:
€
∂ F
∂ nx i
= w (3)
We have two conjectures about individual non-cooperative behaviour that is likely to prevail without any communication. Falk et al. (2002) provide an accurate description of how behaviour in Commons dilemmas is influenced by inequity aversion and payoff maximization. We are interested in evaluating within an experimental framework how individual’s objectives are influenced by the information that is available to them and by the ability to communicate or not. We expect that individual information disclosure encourages more rivalry and, therefore, more emphasis on relative rather than absolute
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€
CEA Meetings 2006 Coady Wing & Stephan Schott payoff maximization. Solutions to both objectives, therefore, need to be identified. They present two extreme scenarios of the more general model by Falk et al. (2002), with one exception. Under relative payoff maximization there are sometimes several asymmetric equilibria. Under the latter scenario we assume that subjects first maximize relative payoffs and then choose the solution that maximizes their total payoff.
With the more conventional assumption of payoff maximization subjects will try to maximize the payoff function (equation (1)) with respect to x i
, resulting in the following first-order condition:
∂π i
∂ x i
= − w +
∑ x i
− x i
∑ x i
F ( ∑ x i
)
∑ x i
+
X i
∑ x i
∂ F ( ∑ x i
)
∂ x i
= 0 (4)
€
F ( ∑ x i
)
∑ x i
= AP i
and
∂ F ( ∑ x i
)
∂ x i
= MP i
are the average product and marginal product of an additional unit of effort or contribution to the CPR respectively. A symmetric Nash
€ n − 1 n
AP i
+
1 n
MP i
= w (5)
If instead subjects intend to maximize relative payoffs, it depends who they can compare
€ subjects do not know what the distribution of payoffs and contributions to market 1 are.
They are most likely going to use the group average as a reference point. With individual information disclosure, on the other hand, subjects can exactly track how they are performing in comparison to every other individual participant. Under these
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€
CEA Meetings 2006 Coady Wing & Stephan Schott circumstances the objective function could be to maximize
π i
/
π j max. with respect to x i which requires the following necessary condition to hold:
∂π i
∂ x i
π max .
j
− π i
∂π max .
j
∂ x i
( π j max .
)
2
= 0 , (6) where π max .
j
= ( e − x
€ max .
j
) w + x max .
j
∑ x i
F ( ∑ x i
) .
We can solve the necessary condition by setting the numerator equal to 0:
€
[ − w +
∑ x i
− x i
∑ x i
AP i
+ x i
∑ x i
MP i
] π max .
j
− π i
[ − x j
∑ x i
AP i
+ x j
∑ x i
MP i
] = 0 .
(7)
In a symmetric Nash equilibrium none of the subjects wish to deviate and it must be true that x i
=x j
and
π max .
j
= π i
= π
. Equation (7), therefore, simplifies to:
AP i
=w .
(8)
€
III. Parameterization, Nash Predictions and Hypotheses of our Paper
Our experiment consists of 2 practice sessions followed by 15 paid sessions with 6 participants for each session. Participants never met and do not know who is playing in their group. Participants receive endowment of 15 tokens every period that they can invest in market 1 (the CPR) and market 2. The return in market 2 is 10 Lab $ (1 Lab $ is later converted to Can $ 0.005) for every token invested. The total payoff ( Π ) in market
1 to the entire group is based on the following quadratic function:
Π = 94 ∑ x i
− ( ∑ x i
) 2 (9)
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CEA Meetings 2006 and each participant’s payoff function is:
Coady Wing & Stephan Schott
Π i
= ( 15 − x i
) 10 +
∑ x i x i
( 94 ∑ x i
− ( ∑ x i
) 2 ) (10) which simplifies to:
Π i
=
150
+
84 x i
− x i
∑ x i
(11)
The socially optimal solution is reached when
∂ Π
∂ x i
= 10 or ∑ x i
=42.
If subjects are maximizing their payoff function (equation (5)), a symmetric Nash equilibrium (SNE) can be derived from equation (5): x i
SNE
= 12 ; which is significantly larger than the socially optimal solution ( x i
*
= 7 ). If subjects instead wish to maximize relative payoffs or wish to “win the game” they would want to contribute more than the
SNE of 12. For the relative payoff maximizing Nash equilibrium we assume that subjects first wish to have the highest payoff in each round, and secondly that they will choose the option that maximizes their payoff if they have a number of options.
We can, therefore, derive two different reaction functions, which depend on the participant’s objective function (see figure 1). The reaction functions can be considered as extreme cases and the true behaviour might be a weighted average of both objectives.
1
1 see Falk et al. (2002) for an accurate discussion of the different combinations of payoff maximization and types of inequity aversion.
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CEA Meetings 2006 Coady Wing & Stephan Schott x i
15
14
13
12
10
Figure 1: Reaction Functions and Symmetric Nash
Equilibria
Π i max .
Reaction function
Relative profit maximizer reaction function
4.5
x j
10.8 12 13 14 15
112
Figure 1 describes the two extreme case reaction functions. The dark function is the standard payoff maximizing reaction function with a symmetric Nash equilibrium at x i
SNE
= 12 . It shows a range of possible individual contributions between 4.5 (either 4 or 5 will provide the same payoff) and 15.
If individuals, however, first care about their relative payoff and secondly about payoff maximization they would never contribute less than 10 (if everyone else contributed 15 they would exactly contribute 10). The symmetric Nash equilibrium in this case would be 14, which can be derived by deriving the average product from equation (9) and setting it equal to 10. The reaction function for the relative payoff maximizers coincides with the other reaction function up to the point when the payoff maximizing reaction function slopes downward (at the average contribution of others
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CEA Meetings 2006 Coady Wing & Stephan Schott
( x j
) of 10.8 or aggregate contribution of others but individual i ( X
− i
) of 54). For relative payoff maximizers it pays to contribute 15 as long as everyone else contributes less than 12.
2 When everyone else contributes 12, subject i could also contribute 12 (the symmetric Nash equilibrium for payoff maximizers) and receive a payoff of 294. If instead subject i contributes 13 she only loses 1 Lab $ but everyone else loses 12 Lab $.
When everyone else contributes 13 on average, subject i would receive a payoff of Lab $
220, while everyone else receives only Lab $ 215, if she contributed 14. The best decisions if everyone else contributes 14 on average is to also contribute 14, otherwise other players will have higher payoffs than subject i. It is, therefore, another symmetric
Nash equilibrium. Only at average contributions of others above 14 or 70 in aggregate does it pay to lower contributions below the contributions of others for relative payoff maximizers.
IV. Experimental Design
The experiment was conducted online using Carleton University’s Web CT environment.
Because the entire experiment is being conducted over the Internet, a Web CT site facilitates instructions, investment choices, information disclosure, communication, and several other aspects of the experiment.
Participants
Participants were recruited from first year and second year undergraduate classes from different disciplines (Public Administration, French, Economics, Journalism, etc.) , as
2 Note: if everyone else contributes 11 a relative payoff maximizer is indifferent between playing 14 or 15; both would generate the same payoff.
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CEA Meetings 2006 Coady Wing & Stephan Schott well as graduate students from the School of Public Policy and Administration at
Carleton University. The latter have a wide variety of undergraduate degrees. Each potential participant was provided with a short PowerPoint slide show that offered a very general description of the experiment, the range of expected payoffs, and contact information. Email addresses were collected and a blind copy bulk email was then sent to all potential participants. Anyone interested in actually participating was asked to respond to the bulk email. Once participants were chosen, they were asked to fill out a sign-up sheet and a short questionnaire, which gathered information regarding the occupation, income, education, gender, and other demographic variables. Data from the questionnaire will be used to explore any relationships between the characteristics of participants and their behavior in the experiment. Participants were then assigned (arbitrarily) to a treatment group and emailed a username, password, and the url of the experimental website.
The Website
Although certain elements are common to all groups, the details of the website vary slightly between treatment groups. Regardless of what treatment a participant has been assigned, they use the login information provided via email to enter a website that contains detailed instructions, a payoff matrix, a payoff calculator program, and a results section which provides information about payoffs from each round of the experiment.
Once they have read the instructions, all participants are directed to an online consent form to which they must agree to before continuing.
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CEA Meetings 2006 Coady Wing & Stephan Schott
Participants in groups that include the communication treatment have access to an internal email system that can be used to send messages to the other participants in the group. This feature is not visible to participants in non-communication treatments.
In the same way, participants in groups that include the information disclosure treatment will have access to a results table that includes the investment decisions and payoffs of each member of the group for each round of the experiment. Participants in non-information disclosure groups receive only information about their own investments and payoffs.
The Treatments
By running the experiment over the Internet we hope to gain a better understanding of the differences between face-to-face and electronic communication, and evaluate the viability of using the Internet to conduct experimental economic research.
However, the online methodology also has a more theoretical purpose. In most experimental designs, communication takes place in a sequential, round based fashion.
Costly communication in Ostrom et al.’s (1994) experiments was designed as a secondorder public-good dilemma situation. It introduces another collective dilemma, i.e. who volunteers to provide for a communication round. Only if at least half the players decided to pay for communication it would take place. In most of the sessions groups, therefore, only communicated once. In our paper we impose no restrictions on communication. Participants in the experiments make online decisions through a secure website. Communication is costly because all subjects face an opportunity cost of spending time writing E-mails and engaging in online discussions. Subjects can
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CEA Meetings 2006 Coady Wing & Stephan Schott unilaterally engage in communication either with the group or one on one. We think this is quite realistic in the modern age of online communication. This will also change the impact information disclosure will have on individual decisions because the experimental environment is different and subjects can make anonymous side deals with individual subjects. With individual information disclosure subjects can verify if individuals complied to agreements while this is not possible with aggregate information. As opposed to Ostrom et al. ‘s and other experiments with communication, participants in our experiment can anonymously communicate with specific other participants.
Information Disclosure
As the experiment proceeds from round to round, the information is updated to include the most recent information. Participants may view the current information at any point during the game. If they choose to, participants are able to log on to the website, view or even print the results tables, and then log off to ponder the situation before actually making an investment decision.
There are four types of treatment groups: a baseline treatment with access to neither communication nor full information disclosure, an E-mail communication and full information disclosure treatment, an E-mail communication and limited (average) information disclosure treatment, and a treatment with full information disclosure and no communication. Each treatment is repeated 3 times so that we have a total of 12 independent experimental sessions.
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CEA Meetings 2006
V. Results
Coady Wing & Stephan Schott
We can report on 9 of the 12 experimental sessions so far. Of the outstanding three sessions 2 are in progress. As the remaining sessions are completed, some of the conclusions may change.
1. Aggregate Investments
Table 1 reports the aggregate contributions to the common pool. The raw data indicates that communication leads to more efficient results than no communication and that average disclosure is more efficient than full disclosure. Full disclosure and no communication is by far the least efficient and has the smallest standard deviation (it is, however, the only treatment that has been repeated three times).
Table 1: Mean Aggregate Contributions per period to the Common Pool by
Communication and Information Disclosure Treatments (standard deviations are in parentheses)
Full disclosure
No communication 76.67 (3.25)
Communication
Column Totals
68.1 (5.98)
73.08 (3.09)
Average disclosure
65.23 (5.49)
64.83 (8.30)
65.03 (5.51)
Row Totals
71.93 (3.23)
66.47 (4.54)
Figure 1 displays the average aggregate contributions per period. It can be observed that full disclosure and no communication result in higher aggregate contributions in almost every single round. The other treatments are surprisingly similar, except perhaps for
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CEA Meetings 2006 Coady Wing & Stephan Schott
Figure 1: Aggregate Contributions to the Common Pool by Treatment and by
Round Mean over all the sessions
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7 8
Round
9 10 11 12 13 14 15
ComFull
ComNofull
NocomFull
NocomNofull
Payoffmax Nash
Relativemax Nash trends. Both the communication with full disclosure and the average disclosure with no communication treatments seem to converge towards the end to the payoff maximizing
Nash, while the communication treatments with average communication tend to diverge from that Nash. In the communication treatments groups typically started off with lower contributions, particularly if they succeeded in communicating early on. Towards the middle of the experiment the communication effects usually faded, renewed communication occurred, which reduced contributions and increased payoffs once more.
We could observe a difference between full disclosure and average disclosure in the magnitude of the communication effects. With full disclosure subjects did not reduce contributions as much as without full disclosure. We will test explanations for this
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CEA Meetings 2006 Coady Wing & Stephan Schott phenomenon both by observing actual communication patterns and stated responses by subjects in both rounds. A possible explanation that will be tested is that subjects in full disclosure treatments limited their cooperative moves as they observed even a few subjects deviating substantially from agreed contributions.
One of the most successful sessions was one with communication and average disclosure. A repetition of that treatment, however, resulted in no single communication interaction and generated results similar to results observed in no communication rounds.
In fact when we separate rounds by actual use of communication (see table 2 and figure
2) online communication becomes a more powerful variable in inducing cooperation and more efficient use of the resource. We are, however, cautious about the meaning of the results because of the limited number of communication sessions. The separation by actual use of communication does, however, increase the number of observation for noncommunication rounds. There is much stronger evidence that no communication with average disclosure actually is close to the predicted aggregate Nash of 72.
Table 2: Mean Aggregate Contributions per period to the Common Pool by
Communication Use and Information Disclosure (standard deviations are in parentheses)
Full disclosure
No communication 76.67 (3.25)
Communication
Column Totals
68.1 (5.98)
73.08 (3.09)
Average disclosure Row Totals
69.79 (3.93)
55.27 (13.30)
61.91 (5.96)
72.34 (3.46)
63.82 (4.75)
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CEA Meetings 2006 Coady Wing & Stephan Schott
Figure 2: Aggregate Contributions to the Common Pool by Use of Communication and Information Disclosure by Round Mean over all the sessions
90
60
50
40
30
20
80
70
10
0
1 2 3 4 5 6 7 8
Round
9 10 11 12 13 14 15
ComFull
ComNofull
NocomFull
NocomNofull
Payoffmax Nash
Relativemax Nash
Social optimum
An OLS regression with aggregate contributions to the common pool provides a clearer picture about treatment and (endogenous) communication effects. Table 3 displays results from two separate OLS regressions. The left column displays the results of a regression, which only considers pure treatment effects, a trend effect (the variable
“round”) and the interaction between full information disclosure and communication as a treatment variable. The results indicate that full information disclosure leads to significantly larger contributions to the common pool, and, therefore, to significantly less efficient and smaller individual payoffs on average. The communication treatment by itself is not significant; however, when combined with full information disclosure, the option to communicate reduces aggregate contributions to the CPR. We also observe a
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CEA Meetings 2006 Coady Wing & Stephan Schott significant trend. Contributions tend to rise each round. A second regression employs a dummy variable that measures actual communication in each round as well as the option to communicate as a treatment variable. It also evaluated the interaction of full information disclosure with actually chosen communication patterns (endogenous communication).
Table 3: An OLS regression with aggregate contributions by round (9x15 rounds) to the common pool as a dependent variable (standard errors in parentheses).
Full Information Disclosure
Communication Treatment
Full Info * Communication
Endogenously Chosen
Communication
Full Info * Endogenous
Communication
Round
Constant
N
R2
Treatments
(1)
11.167
(4.89)**
-0.400
(0.16)
-7.900
(2.33)*
.
.
.
.
0.505
(2.62)**
61.192
(26.05)**
135
.249
Treatments + Endogenous
Communication
(2)
6.385
(3.65)**
-2.275
(1.26)
.
.
-14.489
(3.90)**
10.344
(2.12)*
0.464
(2.48)*
64.390
(30.09)**
135
.303
We find that communication as a treatment variable still remains insignificant but actual endogenously chosen communication significantly reduces aggregate extraction in a round.
3 Full information disclosure, however, now significantly reduces the aggregate contribution reducing effects of communication. There seems to be a crowding out effect of full information disclosure, when subjects decide to communicate. Communication
3 Aggregate extraction in a given round is likely to be correlated with extraction in earlier rounds (this will be tested and a regression analysis which adjusts for autocorrelation will be conducted if necessary).
Communication from the beginning or in earlier rounds would be more effective in increasing efficiency and payoffs if aggregate contributions are autocorrelated.
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CEA Meetings 2006 Coady Wing & Stephan Schott with full information disclosure is quite different from limited information disclosure sessions that only display aggregate or average information. With full disclosure individuals can send message to the entire groups and can target individual cooperators or defectors. As long as there are a few clear defectors that exploit the reduction of contributions of others cooperation is prone to failure. When individuals only observe aggregate information they are not able to tell if some people are clearly defecting or if just the group on average is contributing more than agreed upon
We can summarize our findings so far in the following observations:
Observation 1: Online communication only leads to more efficient outcomes than no communication when people chose to communicate. This is not necessarily the case.
Observation 2: Full disclosure results in less efficient use of the common pool than limited disclosure of aggregate or average contributions.
Observation 3: Information disclosure crowds out the efficiency enhancing and aggregate income-increasing effects of online communication.
2. Distribution of payoffs
We used the coefficient of variation in individual payoffs to measure income inequality by round. The COV is simply the standard deviation in payoffs in a given round expressed as a percentage of the mean payoff in that round. In this context, the
COV is a measure of the similarity in individual payoffs. In a given round and session, the COV takes a value of zero when each participant receives the exact same payoff. As payoff inequality increases, the COV increases as well. Table 4 depicts the mean COV over all rounds and sessions by treatment; standard errors are in parentheses. According to the COV, inequality is lowest in groups that received the full information disclosure
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CEA Meetings 2006 Coady Wing & Stephan Schott and no communication treatment. Inequality was highest in groups treated with average information disclosure and no communication. The most immediate observation is that the full information disclosure generates equality, while average information generates relatively more inequality.
Table 4: Mean COV over all rounds and sessions by treatment (standard errors are in parentheses)
Average
Information
Disclosure
Full
Information
Disclosure
Row
Totals
Communication
No
Communication
12.480534
(8.7144251)
N = 30
Column Totals
18.509806
(11.273311)
N = 30
15.49517
(10.442023)
N = 60
11.473126
(4.8701901)
N = 30
7.5320845
(7.1647739)
N = 45
9.1298046
(6.5920863)
N = 75
11.97683
(7.0173655)
N = 60
11.982512
(10.496277)
N = 75
Interestingly, the communication treatment seems to crowd out both of these effects.
When communication is added to average information disclosure, inequality falls from
18.5 to 12.5, on average. The effect is similar in the full information treatments: inequality is 7.5 under the full information no communication treatment and rises to 11.5
when communication is added. In both cases, communication weakens the equity impact of the information disclosure treatment.
Beyond the overall treatment effects, there appears to be a slight time trend towards lower inequality. This trend can be interpreted in at least two ways. The
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CEA Meetings 2006 Coady Wing & Stephan Schott convergence in COV could reflect a learning/emulation process in which participants gravitate towards what they perceive to be a ‘good’ or ‘acceptable’ strategy. The outcome of such a process is a more symmetric distribution of payoffs and a correspondingly lower COV. Alternatively, the convergence in the COV could reflect a more explicit desire for equity.
If participants value equity and fairness they may pursue strategies designed to address these objectives rather than simple payoff maximizing strategies. It is difficult to separate these two possibilities, but a consideration of the relationship between the COV and total payoff to the group suggests that participants do not gravitate towards a single investment strategy over time. Figure 3 is a scatter plot of the COV by total payoff for each of the treatment combinations.
Figure 3: COV versus Total Payoffs
No Communication, Avg Info No Communication, Full Info
Communication, Avg Info Communication, Full Info
500 1000
Graphs by com and info
1500 2000 2500 500 paytot
1000 1500 2000 2500
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CEA Meetings 2006 Coady Wing & Stephan Schott
There is a strong, positive relationship between the COV and total payoffs in both of the no communication treatments. In the communication treatment with full disclosure inequality is the lowest and not positively correlated with total payoff, while communication and average information shows a positive relationship for low payoff levels only and no significant correlation for higher payoff levels.
A regression analysis offers a more comprehensive assessment of the outcomes of the experiment. Table 5 presents the results from two model specifications that were estimated using a simple pooled OLS procedure 4 . In each case, the dependent variable is the COV of payoffs in a given round of a given session. The first specification investigates the basic treatment effects and the overall time trend in the data. The second specification includes a dummy variable that takes a value of 1 if any communiqués were sent in the round and 0 otherwise. This variable is intended to account for the effect of actually using the communication mechanism.
The results are interesting, but are based on a small (preliminary) sample size. In the first model, all three treatments have a statistically significant impact on the level of payoff inequality. Full information disclosure decreases the mean level of the COV while the communication treatment decreases the mean level of the COV. In line with the aggregate analysis presented earlier in the paper, the coefficient on the interaction term is positive, which implies combining communication and information disclosure dilutes the equity generating power of both individual treatments.
4
We also estimated a random effects model, using the session as the cross-sectional identifier.
Unfortunately, the sample size is very small and the results are not (generally) statistically significant. We may return to this model as more sessions are completed.
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CEA Meetings 2006 Coady Wing & Stephan Schott
The second specification includes a dummy variable and an interaction term for endogenously chosen communication in a given round. Only the constant term (which represents the baseline group) and the full information disclosure treatment have statistically significant impacts under this specification.
Table 5: OLS regression of COV per round (standard deviation in parentheses)
Full Information Disclosure
Communication Treatment
Full Info * Communication
Endogenously Chosen
Communication
Full Info * Endogenous
Communication
Round
Constant
N
R2
Treatments
(1)
-11.167
(5.72)**
-6.029
(2.87)**
10.018
(3.51)**
.
.
.
.
-0.299
(1.83)
20.905
(10.54)**
134
.218
Treatments + Endogenous
Communication
(2)
-6.782
(4.25)**
-1.078
(0.66)
.
.
0.353
(0.10)
2.393
(0.54)
-0.297
(1.72)
18.361
(9.39)**
134
.148
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CEA Meetings 2006
VI. Conclusions
Coady Wing & Stephan Schott
We can draw some initial conclusions from the generated data in our experiment. More data is necessary to conduct more meaningful statistical and econometric testing and to make conclusive suggestions. Our experimental results so far have shown that full disclosure about individual’s contributions and payoffs has a significant impact on group behaviour. It leads to outcomes that are even less efficient than payoff maximizing Nash predictions. Full disclosure, therefore, needs to be taken more seriously as a treatment variable by itself and not just in combination with sanctioning. In fact it needs to be determined in future research if subjects overcontribute above their best response for payoff maximization in order to punish other people or if it pure envy which drives this behaviour. The survey information (yet to be analyzed) from our experiment might shed more light on this research question. Full information disclosure, however, also has some positive effects: (1) It leads to more equality as the COV is significantly reduce compared to average disclosure rounds and (2) It can induce groups to communicate when they reach relatively low individual payoffs which is typical in full disclosure rounds without communication. Once subjects hit the relative payoff maximizing Nash they usually seek communication. This takes them away from the latter Nash and improves efficiency, but not as much as with average disclosure when communication occurs.
A major conclusion of experimental research on individual and group behavior in
CPR environments is that communication dramatically improves outcomes (See Ostrom et al. 1992, 1994). However, there is very little evidence on the interaction between information disclosure and communication. It is not clear, for instance, whether
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CEA Meetings 2006 Coady Wing & Stephan Schott information disclosure enhances or crowds out the impact of communication. Our results indicate that full disclosure tends to have a crowding out effect. It limits the cooperative impacts of communication even without sanctioning possibilities. A subset of subjects are able to reduce contributions temporarily but full disclosure tends to separate individuals into distinct groups of cooperators and defectors. The cooperators sometimes are content to ignore the defectors who reap in extraordinary payoffs, and sometimes cooperation ceases and cooperators turn into reciprocators who punish the defectors.
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CEA Meetings 2006
References
Coady Wing & Stephan Schott
Anderhub, V., Mueller, R., Schmidt, C., 2001. “Design and Evaluation of an Economic
Experiment via the Internet”, Journal of Economic Behaviour & Organization,
Vol. 46, pp. 227-247.
Falk, A., Fehr, E. and Fischbacher, U., 2002. “Appropriating the Commons: A
Theoretical Explanation”, The Drama of the Commons , edited by Ostrom, Dietz,
Dolsak, Stern, Stonich and Weber, National Academy pres: Washington, DC.
Frohlich, N. and Oppenheimer, J.,1998. “Some Consequences of E-mail vs. Face-to-Face
Communication in Experiment”, Journal of Economic Behavior & Organization,
Vol. 35 , 389-403.
Isaac, R. and Walker, J., 1988. “Communication and Free-Riding Behavior: The
Voluntary Contribution Mechanism”, Economic Inquiry, 24 (4) , 585-608.
Ostrom, E., Walker, J. and Gardner, R., 1994. Rules, Games and Common-Pool
Resources , University of Michigan Press.
Ostrom, E., Walker, J. and Gardner, R., 1992. “Covenants With and Without a Sword:
Self-Governance is Possible”. The American Political Science Review, Vol. 86,
No.2
, 404-417.
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