Leadership and Reciprocity in a Leading-by-Example Game

Despite growing interest in leadership in the experimental literature, limited attention has been given to the theoretical analyses of leadership. This paper investigates the effectiveness of leading by example in public goods games among reciprocal agents. The ``leading-by-example'' (LBE) game is a two-stage game with the same payoff structure as the classic voluntary contribution mechanism (VCM), in which a leader first makes a contribution decision, followed by the followers who make a contribution decision upon observing the leader's move. If the marginal per capita return (MPCR) is sufficiently high, the LBE game is more effective at inducing contributions than VCM. However, if MPCR is low, VCM is more effective than LBE; a reduced MPCR implies that the kindness of the leader and the followers are reduced as well, which leads to a decreased reciprocal incentive. This result is robust to the incomplete information game where players are uncertain about others' reciprocal sensitivities