CeDEx 2015-04: Entry or Exit? The Effect of Voluntary Participation on Cooperation (revised version available 2015-20)

Summary

Cooperation for the provision of public goods is vital for human societies. However, many groups fall prey to free-riding incentives and struggle to foster cooperation, ultimately failing to reach socially optimal levels of public good provision. Thus, the success of human cooperation relies on the effectiveness of mechanisms and institutions designed to restrain free-riding. 

In this Nottingham School of Economics working paper Daniele Nosenzo and Fabio Tufano study one such institution: voluntary participation to public good provision. Voluntary participation is a nearly ubiquitous characteristic of real-world social interactions: in many naturally occurring environments individuals can freely decide whether or not to enter into partnerships with others to engage in cooperative endeavors. Moreover, in most settings individuals are free to exit from partnerships, if they wish to do so. This study investigates which of the two voluntary-participation mechanisms outlined above (entry or exit) is most conducive to cooperation for the provision of a public good.

There is a large, mostly theoretical, literature emphasizing the potential positive effects that voluntary participation may have on cooperation. Some authors argue that voluntary participation may foster cooperation through an entry mechanism, by leading to assortative selection of interaction partners whereby people more inclined to cooperate are more likely to join others in cooperative endeavours. Other authors have stressed the importance of an exit mechanism, whereby the opportunity to leave the partnership can be used as a means to resist exploitation by free-riders. This paper examines the relative effectiveness of these two mechanisms in a one-shot, two-person public goods game experiment. The results show that voluntary participation has a positive effect on public good provision through the exit mechanism, but there is no evidence of a positive effect of entry. Assortative selection of interaction partners seems to play a minor role in the setting studied in this paper, whereas the threat of costly exit is a powerful force to discipline free-riding.

Download the revised paper 2015-20 in PDF format.

CeDEx 2015-04, Entry or Exit? The Effect of Voluntary Participation on Cooperation by Daniele Nosenzo and Fabio Tufano

Authors

Daniele Nosenzo and Fabio Tufano

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