Analysing group contract design using a threshold public goods experiment

This paper presents the results of a threshold public goods game experiment with
heterogeneous players. The experiment is designed in close collaboration with the
Dutch association of agri-environmental farmer collectives. Subjects are recruited at
a university (study 1) and a farm management training centre (study 2), the subjects
of the second study most resembling the subjects in the field. The experiment consists
of several treatments and each treatment has two different distribution rules, which
are varied in a within-subjects manner. After subjects have experienced both, they can
vote for one of the two rules: either a differentiated bonus that results in equal payoff
for all, or an undifferentiated, equal share of the group bonus. In a between-subjects
manner, subjects can vote for a (minimum or average) threshold or are faced with an
exogenous threshold. The results indicate that exogenous thresholds perform better,
possibly because the focal point they provide facilitates coordination. With regard to
the two distribution rules, the results are mixed: in study 1, average contributions and
payoffs are higher under the ‘equal-payoff’ rule, but there is no significant difference
between the two in study 2. Overall, our results suggest that environmental payment
schemes should consider cost heterogeneity in the design of group contracts, and pay
explicit attention to coordination problems too.