Inequity aversion, mandates, and the provision of public goods

Abstract

Previous research has shown that individuals have preferences for equity that deviate from traditional payoff maximizing economic theory. In this research, we use the model of inequity aversion (Fehr and Schmidt, 1999) to predict how inequity induced through mandated contributions influences voluntary contribution behavior in a threshold public good game. Contrary to the model’s predictions, we find that inequity induced through mandates does not have a significant effect on individual contribution behavior; rather individuals tend to contribute equal absolute amounts to the public good. Regardless of the predictability of the Fehr and Schmidt (1999) model, we do find that mandates significantly decrease the voluntary provision of the public good, compared to a traditional threshold public good game. The results of this research illustrate the impacts of mandates on voluntary contribution behavior, as well as the behavioral implications of inequity in the provision of public goods.