The Ratchet Effect in Social Dilemmas

36 Pages Posted: 9 Apr 2020

See all articles by Carlo Gallier

Carlo Gallier

ZEW – Leibniz Centre for European Economic Research

Bodo Sturm

ZEW – Leibniz Centre for European Economic Research

Date Written: 2020

Abstract

In this paper, we investigate whether dynamic incentive schemes lead to a ratchet effect in a social dilemma. We test whether subjects strategically restrict their contribution levels at the beginning of a cumulative public goods game in order to avoid high obligations in the future and how this affects efficiency. The incentive schemes prescribe that individual contributions have to be at least as high as, or strictly higher than, contributions in the previous period. We observe a substantial and statistically significant ratchet effect. Participants reduce their public good contribution levels at the beginning of the game, anticipating that higher contributions imply higher minimum contribution levels in the future, which increases the risk of being exploited by freeriders. While the dynamic incentive schemes lead to increasing contribution levels over the course of the game, this increase is not strong enough to compensate the efficiency losses at the beginning.

Keywords: Public goods; dynamic incentives; minimum contribution rules; ratchet effect

JEL Classification: C72, C92, H41

Suggested Citation

Gallier, Carlo and Sturm, Bodo, The Ratchet Effect in Social Dilemmas (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-015, Available at SSRN: https://ssrn.com/abstract=3571154 or http://dx.doi.org/10.2139/ssrn.3571154

Carlo Gallier (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Bodo Sturm

ZEW – Leibniz Centre for European Economic Research

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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