Policy Research

Alternative rebate rules in the provision of a threshold public good: An experimental investigation

Melanie Marks, Rachel Croson

Summary

This article summarizes the authors’ research on the effects of rebate rules on voluntary contributions to threshold public goods. In their research, the authors examined three separate rebate rules and their effects on voluntary contributions from a group of participants. The three rebate rules that were examined were the No Rebate policy where any excess contributions are not given back to the contributors, the Proportional Rebate policy where rebates are given back to the contributors in proportion to how much they originally gave, and the Utilization Rebate policy where no rebate is given and the excess contributions are used on future public goods. To translate this into a real life situation, the authors used a 1995 situation where a company in New York needed funds for an environmentally friendly energy project. Citizens in New York could opt into the program, and an extra fee would be added to their electricity bill. If a No Rebate policy would be implemented in this situation, any extra funds the company had after project would be wasted. This could mean that they are kept by the company, or used for office needs. No money would be returned to the contributors. If a Proportional Rebate policy was in place, the excess contributions would be given back to the citizens in the proportion that they contributed to the project. If there was a Utilization Rebate policy in place, the company would take the excess contributions and use it toward another public good, like planting trees. No Rebate policies have the highest penalty for contribution, as the individual’s excess contribution is wasted, while the Utilization Rebate policy has the least amount of penalty for contributing because any excess contributions are put towards more public goods that benefit the contributors. The researchers found that the amount of contributions is directly correlated to what penalties come with over contribution. The highest amount of contribution was seen when the Utilization Rebate treatment was in place, and the least amount when the No Rebate policy treatment was in place.

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Policy Implications

The authors state the results of this research suggest that, when looking for public funding towards a project, “policy makers should implement a Utilization Rebate whenever possible in these settings, since the proportion of successful provision is as high, and contributions higher, than the other two treatments.” Implementing a Utilization Rebate policy when asking for public contributions would significantly increase a policy maker’s chance of getting the project fully funded.