Relative performance of two simple incentive mechanisms in a public good experiment

This paper reports on experiments designed to compare the performance of two incentive mechanisms in public goods problems. One mechanism rewards and penalizes deviations from the average contribution of the other agents to the public good (tax-subsidy mechanism). Another mechanism allows agents to subsidize the other agents’contributions (compensation mechanism). It is found that both mechanisms lead to an increase in the level of contribution to the public good. The tax-subsidy mechanism allows for good point and interval prediction of the average level of contribution. The compensation mechanism allows for less reliable prediction of the average level of contributions.