Change Thy Neighbours : Local Public Good Provision within Endogenous Neighbourhoods

In a circular neighbourhood, each subject has a left and a right neighbour with whom they interact repeatedly in two structurally independent public goods games. We compare an exogenous treatment in which subjects’ positions in the neighbourhood are exogenously reshuffled, to an endogenous treatment where subjects have the opportunity to choose where to relocate and can actually do so if their new neighbours agree. We find that those who wish to relocate are subjects whose neighbours contribute relatively less than themselves and that desirable locations in the network are where contributions levels are relatively higher. While the number of those who actually change their position is small, the threat of remaining stuck in an un-cooperative neighbourhood acts as a powerful deterrent of free riding. When endogenous relocation is possible, contributions are larger and do not decay over time as free riders turn into conditional cooperators