FREE-RIDER EFFECTS IN RENT-SEEKING GROUPS COMPETING FOR PUBLIC-GOODS

This paper studies individual behavior within a group when there is re nt-seeking and groups compete in the selection of a public good - a va riant of the traditional public goods problem. The situation is differ ent from traditional public goods because an individual may not receiv e no reward for contribution to the group if the group does not win. B ased on theory, the optimal contribution varies strategically dependin g on the characteristics of the situation, individual risk preferences , income, and subjective probability of winning. Individual contributi ons or bids toward a group objective were tested experimentally. Resul ts showed that use of a demand revealing mechanism did not produce a s ignificant difference in individual contributions to group efforts whe n the level of reward was low and when rewards were indirect. However, the demand revealing mechanism caused a significant difference in bid s when rewards were high and direct, thus indicating free-riding behav ior.