Market Failure or Success

Market Failure or Success

The New Debate

Edited by Tyler Cowen and Eric Crampton

Recent years have seen the development of new theories of market failure based on asymmetric information and network effects. According to the new paradigm, we can expect substantial failure in the markets for labor, credit, insurance, software, new technologies and even used cars, to give but a few examples. This volume brings together the key papers on the subject, including classic papers by Joseph Stiglitz, George Akerlof and Paul David. The book provides powerful theoretical and empirical rebuttals challenging the assumptions of these new models and questioning the usual policy conclusions. It goes on to demonstrate how an examination of real markets and careful experimental studies are unable to verify the new theories. New frontiers for research are also suggested.

Chapter 16: Group size and the voluntary provision of public goods: experimental evidence utilizing large groups

R. Mark Isaac, James M. Walker and Arlington W. Williams

Subjects: economics and finance, industrial economics


16. Group size and the voluntary provision of public goods: experimental evidence utilizing large groups R. Mark Isaac, James M. Walker and Arlington W. Williams1 1. INTRODUCTION Over the past decade, the use of computer-based laboratory experiments to study resource allocation mechanisms for both private and public goods has proliferated. The vast majority of this research has employed the same basic procedural framework for executing experiments: a relatively small (e.g. tenperson) group of subjects arrive at the lab at the same time, participate in the experiment, are paid a performance-based cash reward at the experimentÕs conclusion, and leave. This standard framework presents two distinct problems when one wishes to focus on ÔlargeÕ (e.g. 100-person) decision-making groups: physical constraints rooted in the size of the lab and number of computer workstations available, and financial constraints rooted in the magnitude of the subject payments necessary to motivate a large group of participants. It is thus quite understandable that small-group experiments predominate and, in the absence of evidence to the contrary, are implicitly assumed to characterize behavior in similar, large-group decision-making environments. The validity of this assumption is critical if ÔparallelismÕ between the laboratory and a naturally occurring environment (with many decision-making agents) is essential to the relevance of the research. This is presumably the case in experimental research focusing on public policy issues. The research reported here has two primary objectives. The first objective is to explore the extent to which results from previous small-group experiments on the voluntary provision of...

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