A Voluntary Contributions Experiment
Experiment Instructions
Today you will be participating in an experiment in which your goal (per usual) is
to make as much money as possible.
This is a sequential experiment in which you will make decisions over 10 rounds.
In each round, you will have 20 “tokens” and you must decide how you want to
invest your tokens. You will have the option of dividing your tokens into one of
two investment options (whole numbers only, no fractional divisions allowed): a
private account in which all earnings from the account are yours to keep; and a
public account in which total earnings from the investment are divided equally
among all members of the class, regardless of how much you contributed to the
public account.
Your decision in each round will remain confidential, someone will record your
decisions by walking up and down the aisles between rounds. Please do not
communicate with your classmates during the experiment.
Your earnings will be calculated in each round as follows: You will receive a 10¢
return for each token you invest in your private account in that round. The class
will split up _____¢ per token invested in the public account in that round. For
example, if 25 students participate in the experiment, I would calculate that 75¢
is the return per token on the public investment. Each token placed in a public
account will therefore generate 75/25 = 3¢ per student in that round. The
experiment will end after the 10th round.
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The following example payoff calculations may clarify how the experiment works
in a class of 25 students:
Student
Decisions
Private Account
Earnings
All students put all
20 tokens in private
account
20 x 10¢ each =
$2.00
All students put all
20 tokens in public
account
You put 10 tokens
in each account,
while total invested
in public account is
150 tokens
0 x 10¢ each = $0
10 x 10¢ each =
$1.00
Public Account Earnings
0 total tokens x 75¢ each =
$0 total earnings
$0 ÷ 25 students = $0 each
(25 x 20) = 500 total tokens
x 75¢ each = $375 total
earnings
$375 ÷ 25 students = $15
each
150 total tokens x 75¢ each
= $112.50 total earnings
$112.50 ÷ 25 students =
$4.50 each
Total
Earnings
$2.00 per
student
$15.00 per
student
You earn
$1.00 from
private, $4.50
from public =
$5.50 total
 Remember, your goal is to maximize YOUR total earnings over the course of
the 10 rounds of this experiment.
 Make sure that you understand that an equal share of the public account
earnings goes to all students, even to those who may have contributed
nothing to the account.
 I may assign bonus points to the five students with the highest earnings by
the end of the experiment (for example, I may add 5-4-3-2-1 to your overall
bonus point total that I have been collecting through the term)
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Questions for Review
1. Explain the key characteristics that distinguish a public good from a private
good.
2. What makes the earnings from the public account in this experiment a public
good?
3. If the entire class operated as a single group, what would have been the
optimal investment strategy in this experiment? How much could the class
have earned on this investment?
4. Carefully explain why the incentives of each individual do not match the
incentives of the group. What is the optimal strategy for each individual,
given that no communication or cooperation is possible?
5. How much did you contribute to the public account in each round? What
factors did you consider when making your decisions? How did your decision
change over the 10 rounds of the experiment?
6. Did you expect the outcome to change after I allowed for communication?
Would it matter whether there is a way to enforce verbal agreements
between students?
7. Do you think changes in the class size would influence the outcome? For
example, if the class was much larger or much smaller, predict how the
pattern of contributions to the public account might be different.
8. List two or three goods that are commonly identified as public goods, and
describe how they are provided. How is the free-rider problem dealt with in
these markets?
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