Economic Institutions for Group Decisions about Shared Goods Edna T. Loehman Department of Agricultural Economics Purdue University West Lafayette, IN 47907 loehman@purdue.edu Richard Kiser Economic Science Laboratory University of Arizona Tucson, AZ 85721 kiser@econlab.arizona.edu Stephen J. Rassenti Interdisciplinary Center for Economic Science George Mason University 3330 Washington Blvd Arlington VA 22201 srassent@gmu.edu Abstract For a shared good, a group of users determines its nature and shares its cost. In spite of heterogeneity in preferences and ability to pay, equal cost sharing is common for such goods. To facilitate group decision-making, this paper proposes institutions based on a method of tatonnement to find an efficient outcome with full cost recovery. To test their efficacy, four different types of institutions were experimentally compared. Processes differ with respect to message space and associated rules for cost share adjustment. Cost sharing algorithms were allied with unanimity voting to select the group outcome. Testing indicates that an institution with pure price-taking is more efficient than with bidding – with a higher rate of agreement – because bidding produces more strategic behavior. JEL code: H41 (public goods) Key words: shared goods, cost sharing, comparative institutional analysis, adjustment process, experimental economics Experiments were carried out at the Economic Science Laboratory, University of Arizona in 1996, 1997, 1998, 2000. Experimental game prototypes be viewed at http://www.agecon.purdue.edu/staff/loehman Loehman can be reached at 765-494-4303; fax 765-496-1224 This work was supported by NSF grant 9320937-SBR and NSF grant 9617788-SBR.