Why pay for nothing? An experiment on a conditional subsidy scheme in a threshold public good game.

The voluntary provision of public goods can be enhanced by subsidies paid to contributors. However, in the case of threshold public goods, subsidies can be wasted if the public good is not ultimately produced. We therefore test the performance of a conditional subsidy paid to each contributor only if the public good threshold is attained by the group, in comparison to the classic subsidy paid to contributors even if the public good is not produced. This system offers the obvious advantage of sparing public money when the public good is not produced but there is the risk that such incentive discourages contributions. Our experimental results show that subsidy schemes improve the provision of threshold public goods and are welfare-improving compared to a no-subsidy situation. Furthermore, the collective conditionality improves the efficiency of the subsidy mechanism and in some cases improves its effectiveness, despite identical game-theoretic predictions. Applying this conclusion to environmental issues, these results suggest that, in the case of threshold pollution, subsidy schemes encouraging polluters to abate could be improved by introducing a collective conditionality.