Making up for harming others — An experiment on voluntary compensation behavior

Abstract

We investigate in a controlled laboratory setting to what extent buyers are willing to offset negative consumption externalities. In one treatment dimension, we vary whether the externality associated with a purchase is irreversible or can be reduced ex post by a voluntary payment. In a second treatment dimension, we induce diffusion of harm among harmed subjects and diffusion of responsibility among buyers by separately varying the matching of buyers and harmed subjects. We find that subjects are, on average, willing to compensate for their negative externalities and that this willingness is sensitive to the surplus from buying. Yet, experimental buyers are highly heterogeneous, with some never compensating. While the introduction of voluntary compensation significantly reduces externalities, the net externality still remains high across all treatments. Diffusion of responsibility tends to reduce the size of compensation and to increase overall net externalities in the main experiment. An additional control treatment reveals that under diffusion of responsibility among buyers, patterns of conditional cooperation seem to drive compensation in the present setting: the amount paid for compensation increases with higher beliefs about the compensation by other buyers.