Output Sharing Among Groups Exploiting Common Pool Resources

Many economic decisions are susceptible to either free-riding, or excessive rivalry or overextraction. Equally sharing output in partnerships introduces a free-riding incentive which may offset the latter. We conduct a laboratory experiment to assess the performance of output sharing in partnerships by introducing equal-sharing subgroups of size one, four and six into a twelve-person common pool resource (CPR) environment. Group members are either unchanging throughout a 15 period session (the partners treatment), or randomly reassigned each decision round (the strangers treatment). Group size significantly affects effort. Aggregate effort reflects the Nash equilibrium predictions. The first best solution is achieved when resource users are privately extracting from the CPR and equally sharing their output with the socially optimal number of partners. The strangers treatment does not significantly affect aggregate effort. Total payoff distribution, however, is more equitable for strangers than for partners.