Abstract:
A frequently cited argument against the use of market-based instruments to provide public goods is that they diminish our sense of responsibility to be good citizens. In this paper, we report on the results of a laboratory experiment designed to explore the idea that this distrust stems from the ability of some members of society to contribute to the public good with money instead of time or effort. We look at how the personal effort exerted by subjects changes when their peers take advantage of an offer to buy out of their obligation to perform lab tasks that contribute toward carbon emission reductions. We find that on average subjects reduce their effort when their peers buy out. However, the aggregate result masks significant heterogeneity across individual responses. Those who choose not to buy out despite its expected profitability have no response to the treatment while those for whom it would simply not be profitable to buy out register large reductions in effort. The magnitude of these responses is increasing in the share of the group that accepts the buyout offer, suggesting that it is the act of peers buying out rather than the simple introduction of monetary incentives that is the source of the effect.