SFB 303 Discussion Paper No. A - 529
Author: Chen, Yan, and Fang-Fang Tang
Title: Learning and Incentive Compatible Mechanisms for Public
Goods Provision: An Experimental Study
Abstract: This is the first systematic experimental study of the
comparative performance of two incentive compatible mechanisms
for public goods provision: the Basic Quadratic mechanism by
Groves and Ledyard (Gamma = 1 and Gamma = 100) and the
Paired-Difference mechanism by Walker. Both mechanisms are
Nash-efficient and balanced with the same dimensions of message
space, and the latter has one advantage over the former in that
in equilibrium it is individually rational. However, our
experiments demonstrate that the actual performance of the
Basic Quadratic mechanism under a high punishment parameter is
far better than the Basic Quadratic mechanism under a low
punishment parameter, which, in turn, is better than the
Paired-Difference mechanism, evaluated in terms of system
efficiency, close to Pareto optimal level of public goods
provision, convergence to stage game equilibrium and stability.
From this we draw some lessons for mechanism design: standard
considerations, such as incentive compatibility, individual
rationality and balanced budget, are not enough to guarantee
that these desirable properties can actually be obtained in a
dynamic process with human subjects. Other disequilibrium
aspects, such as deviation costs which impose incentives for
subjects to learn to play their equilibrium strategies, and
deviation sensitivity which can either amplify of diminish
noise in a system, are also important to induce good dynamics
and stability. To understand principles of individual learning
behavior, we estimated three static and four dynamic learning
models. Variants of the stimulus response models outperform the
generalized fictitious play model. The comparative performance
of the three variants of the stimulus response models are
statistically indistinguishable.
Keywords: public goods, mechanism design
JEL-Classification-Number: C90, D70
Creation-Date: August 1996
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