Step-Level Public Goods: Experimental Evidence

In a step-level public good experiment, we investigate how the order of moves (simultaneous vs. sequential) and the introduction of a second step-level which is not feasible in standard Nash equilibrium, affects public good provision in a two-player game. We find that the sequential order of moves significantly improves public-good provision and payoffs, even though second movers often punish when first movers who give less than half of the threshold contribution. The additional step-level leads to higher contributions but does not improve public good provision and lowers payoffs. Based on an existing experimental data set, we calibrate Fehr and Schmidt's (1999) model of inequality aversion to make quantitative predictions. We find that actual behaviour fits remarkably well with these predictions in a quantitative sense, but there are also two contradictions to the model's predictions.