Voluntary contributions to reduce expected public losses

Abstract

We examine voluntary private contributions to reduce the probability of a public loss in the experimental economics laboratory. In several treatments, we examine how loss probability, initial wealth and ambiguity affect the contribution level. We observe that, in contrast to the risk-neutral Nash equilibrium, participants do make positive contributions although the contribution level is lower than in the typical experiments on voluntary contributions to fund public goods. Reciprocity plays an important role in individual decision-making. The occurrence of a loss decreases the aggregate contribution level.