Instrumenting beliefs in threshold public goods

Abstract

Understanding the causal impact of beliefs on contributions in Threshold Public Goods (TPGs) is particularly important since the social optimum can be supported as a Nash Equilibrium and best-response contributions are a function of beliefs. Unfortunately, investigations of the impact of beliefs on behavior are plagued with endogeneity concerns. We create a set of instruments by cleanly and exogenously manipulating beliefs without deception. Tests indicate that the instruments are valid and relevant. Perhaps surprisingly, we fail to find evidence that beliefs are endogenous in either the one-shot or repeated-decision settings. TPG allocations are determined by a base contribution and beliefs in a one shot-setting. In the repeated-decision environment, once we instrument for first-round allocations, we find that second-round allocations are driven equally by beliefs and history. Moreover, we find that failing to instrument prior decisions overstates their importance.