Fundamental impossibility theorems on voluntary participation in the provision of non-excludable public goods

Groves and Ledyard (Econometrica 45:783–809, 1977) constructed a mechanism attaining Pareto efficient allocations in the presence of public goods. After this path-breaking paper, many mechanisms have been proposed to attain desirable allocations with public goods. Thus, economists have thought that the free-rider problem is solved, in theory. Our view to this problem is not so optimistic. Rather, we propose fundamental impossibility theorems with public goods. In the previous mechanism design, it was implicitly assumed that every agent must participate in the mechanism that the designer provides. This approach neglects one of the basic features of public goods: non-excludability. We explicitly incorporate non-excludability and then show that it is impossible to construct a mechanism in which every agent has an incentive to participate.     

Pareto improving interventions in a general equilibrium model with private provision of public goods

Most of the literature on government intervention in models of voluntary public goods supply focuses on interventions that increase the total level of a public good, which is considered to be typically underprovided. However, an intervention that is successful in increasing the public good level need not benefit everyone. In this paper we take a direct approach to welfare properties of voluntary provision equilibria in a full blown general equilibrium model with public goods and study interventions that have the goal of Pareto improving on the voluntary provision outcome. Towards this end, we study a model with many private goods and non-linear production technology for the public good, and hence allow for relative price effects to serve as a powerful channel of intervention. In this setup we show that Pareto improving interventions generally do exist. In particular, direct government provision financed by “small” , or “local” , lump-sum taxes can be used generically to Pareto improve upon the voluntary provision outcome.     

Efficient provision of public goods with endogenous redistribution

We study a balanced mechanism that is capable of implementing in Nash equilibrium all the Pareto-efficient individually rational allocations for an economy with public goods. The Government chooses a set of weights directly related to the Lindahl prices corresponding to the Pareto-efficient allocation to be implemented. The mechanism then guarantees that initial endowments are re-allocated so that the chosen vector of Lindahl prices is indeed a Lindahl equilibrium, and implements the corresponding Lindahl allocation. Finally, besides being balanced, our mechanism is simple. Each agent has to declare a desired increase in the amount of public good, and a vector of redistributive transfers of initial endowments (across other agents).Received: 9 May 2003, Accepted: 22 October 2003, JEL Classification: C79, H21, H30, H41We wish to thank Jeremy Edwards, Andrew Postlewaite and Emanuela Sciubba for helpful comments. Of course, any remaining errors are our own.     

Taxation in an economy with private provision of public goods

This paper analyses the effects of taxation and subsidies in an economy with private provision of a public good. It is shown that in a situation where all individuals contribute, taxation affects the equilibrium allocation if and only if at least one individual's voluntary contribution to the public good has an impact on the aggregate tax payments of the others. We then consider linear nonneutral tax-subsidy schemes and analyse efficiency and uniqueness of the resulting Nash equilibria. We show that an efficient Nash equilibrium, where all individuals contribute, will in general not be unique, and establish a non-uniformity property which a tax-subsidy scheme must fulfil in order to induce a unique interior equilibrium that is efficient. Throughout the paper it is assumed that individuals fully understand and take into account the government's budget constraint. Received: 3 November 1997 / Accepted: 23 March 1999     

A stochastic differential game of capitalism

We develop a stochastic differential game of capitalism to analyze the role of uncertainty. In the deterministic game, the firm’s rent is completely taxed away and the firm stops investing completely. In the stochastic game, the government does not tax the firm’s rent completely. The firm posts a positive rate of investment if the firm’s rent exceeds the labor’s income. Although the cooperative solution is indeterminate, cooperation is always Pareto optimal compared to the non-cooperative Markovian Nash equilibrium. For individual rationality, we apply a payoff distribution procedure based on Yeung and Petrosyan (2006) to derive a subgame-consistent solution.     

Stackelberg leadership and transfers in private provision of public goods

We consider transfers in a Stackelberg game of private provision of a public good. It turns out that the agent who is the follower in the process of making voluntary contributions to a public good may have an incentive to make monetary transfers to the Stackelberg leader even in a situation where neither has a comparative advantage in making contributions to the public good. The Stackelberg leader is willing to accept such transfers if the actual contribution game is fully non-cooperative because the transfer generates a Pareto superior outcome. If the contributions in the Stackelberg equilibrium is the threat point of a possible cooperative Nash bargaining game, the Stackelberg leader will refuse to accept the transfer if she can. Received: 30 June 1995 / Accepted: 18 February 1997     

The effect of spillovers on the provision of local public goods

This paper analyzes the provision of local public goods with positive spillovers across jurisdictions. If spillovers are symmetric, the non-cooperative game played by jurisdictions admits a unique equilibrium, and an increase in spillovers reduces the total provision of public goods. Smaller jurisdictions always reduce their contribution, but larger jurisdictions can increase their contribution. When spillovers are asymmetric, equilibrium is unique if spillovers are low, while multiple equilibria exist for high spillover values. In the case of two jurisdictions, an increase in the flow of spillovers to one jurisdiction benefits agents from that jurisdiction but harms agents in the other jurisdiction. Beyond the case of two jurisdictions, the effect of changes in spillovers cannot be signed. An increase in the spillovers flowing to a jurisdiction can actually result in an increase in the supply of public goods by that jurisdiction and harm agents residing in it, while benefiting agents in the other jurisdictions. The results of the paper reveal the complexity of interactions that will plague the design of institutions for multijurisdictional local public good economies with spillovers.      

The impact of referendums on the centralisation of public goods provision: a political economy approach

The paper compares decision-making on the centralisation of public goods provision in the presence of regional externalities under representative and direct democratic institutions. A model with two regions, two public goods and regional spillovers is developed in which uncertainty over the true preferences of candidates makes strategic delegation impossible. The political economy argument against centralisation of Besley and Coate (J Public Econ 87:2611–2637, 2003) does therefore not apply. Instead, it is shown that the existence of rent extraction by delegates alone suffices to make cooperative centralisation more likely through representative democracy under reasonable assumptions. In the case of non-cooperative centralisation, the more extensive possibilities for institutional design under representative democracy increase the likelihood of centralisation. Direct democracy may thus be interpreted as a federalism-preserving institution.     

Firms,public good provision and institutional uncertainty: Evidence from Russia

Enterprises in post-socialist and transition economies often participate in providing infrastructure and social services to the surrounding community which in the Russian legal setting should be local authorities’ responsibility. We propose that this bundling of social and infrastructure goods provision with firm's core operations is a fully rational choice in an uncertain institutional environment. A unique survey data suggest that this manifests itself through more reliable infrastructure, stronger employee attachment to the firm and, most interestingly, through better relations with the authorities. Relationship with authorities is a two-way game where the firm gains from the arrangement but on the other faces sanctions if it decided to depart from it. Firm's participation in the arrangement is clearly enhanced by inherited fixed capital assets from the Soviet era.     

Voice,exit and local capture in public provision of private goods

We developed a simple model on publicly provided private goods, such as health or education that highlights a vicious cycle faced by many developing countries. When public services are not of high quality due to mismanagement or corruption, the wealthy may switch to private alternatives. Their exit weakens the influence of citizen voice over politicians, since that leaves the poor as the only constituent with a stake in good governance. As the civic control over local governments weakens, government’s concern for social welfare declines even further, leading to more corruption and more corrosion in the quality of public services. Our model shows that establishing institutions (such as local taxation) that spread the costs and benefits of governance across the whole society is crucial for the success of local governments. Empirical results from the Philippines support this hypothesis.     

A differential game in a duopoly with instantaneous incentives

In this paper, we study a differential game in which two competing firms exploit a public renewable resource that is relevant from a landscape point of view. We consider a policy maker that provides an instantaneous incentive to the firms in order to prevent the resource exhaustion during the whole extraction period, which coincides with the harvesting license period. We compute an open-loop Nash equilibrium of the differential game, showing that it coincides with a linear feedback Nash equilibrium. Finally, we compute the value of the incentive that leads to the maximization of social welfare considering the incentive both as a pure transfer and as a cost.     

Existence of equilibrium in a differential game of spatial competition with advertising

We investigate a differential duopoly game with horizontal product differentiation and advertising efforts aimed at increasing market demand, to show that the standard approach to spatial competition fails to produce a pure-strategy price equilibrium in a dynamic game framework. This holds independently of the shape of the transportation cost function. Then, we introduce an endogenous cost associated with the choice of location and characterise the feedback equilibrium, identifying the necessary and sufficient condition for the existence of the pure-strategy (stationary) price equilibrium. The same condition is singled out for the static game where consumer population is constant. Finally, we show that the static game cannot be viewed as a special case of the dynamic one.     

Advertising a product to face a competitor entry: a differential game approach

We analyze a market in which advertising is the dominant marketing tool to create market share. We assume that an incumbent firm dominates the market during an initial stage, and that a new competitor is going to enter the market. In particular, we analyze the different advertising policies that the incumbent firm can adopt, before and after the entry of the rival. We explore three possible behaviours. In the first scenario the firm knows that the competitor will arrive at a given instant. In the second one we assume the original firm to be surprised, in the sense that it does not anticipate the entry of the opponent either because it does not expect the competitor to arrive, or it is not prepared to react before the entry takes place. Finally, in the third scenario, the original firm knows that the competitor will enter at a constant rate. We characterize a differential game model and compare the firms’ behaviours in a strategic perspective.     

Voluntary contributions to multiple public goods in a production economy with widespread externalities

In a production economy, multiple public goods are produced by firms in competitive markets, and provided by the government together with contributions from consumers. There are widespread externalities: all consumers’ consumption and contributions and all firms’ production enter into utility functions. Public goods can be imperfect substitutes or complements, and they can be local public goods or club goods. Zero bounds that require consumers to make nonnegative contributions complicate the differentiable approach. Applying the transversality theorem for smooth economies in a regular parameterization, we obtain the existence of equilibrium in such an economy, and generically equilibria are regular and locally unique.     

城市公共品供给中各级政府事权与财权的划分

政府在城市公共品供给中需要考虑如何合理划分各级政府的事权与财权.城市公共品的特性是各级政府事权划分的基础,而事权与财权相统一的原则是各级政府财权划分的理论依据.通过对我国城市公共品供给中各级政府间财政关系进行实证研究发现,各级政府在事权划分上存在模糊、重复、越位和缺位的情况,而财权的划分则没有能够实现与相应事权的匹配.因此,需要重新界定各级政府的事权与财权,从而完善政府的城市公共品供给职能.     

On measures of technical inefficiency and production uncertainty in stochastic frontier production model with correlated error components

Analysis of the behavior of technical inefficiency with respect to parameters and variables of a stochastic frontier model is a neglected area of research in frontier literature. An attempt in this direction, however, has recently been made. It has been shown that in a “standard” stochastic frontier model that both the firm level technical inefficiency and the production uncertainty are monotonically decreasing with observational error. In this paper we show, considering a stochastic frontier model whose error components are jointly distributed as truncated bivariate normal, that this property holds if and only if the distribution of observational error is negatively skewed. We also derive a necessary and sufficient condition under which both firm level technical inefficiency and production uncertainty are monotonically increasing with noise-inefficiency correlation. We next propose a new measure of the industry level production uncertainty and establish the necessary and sufficient condition for firm level technical inefficiency and production uncertainty to be monotonically increasing with industry level production uncertainty. We also study the limiting probabilistic behavior of these conditions under different parametric configuration of our model. Finally we carry out Monte Carlo simulations to study the sample behavior of the population monotonic property of the firm level technical inefficiency and production uncertainty in our model.

Carrots and sticks: new evidence in public goods games with heterogeneous groups

Journal of Economic Interaction and Coordination - Standard public goods games often assign group members the same marginal per capita returns to public goods production, but in reality group...     

On the Edgeworth conjecture for production economies with public goods: A contract-based approach

The paper applies and elaborates a contractual approach to study economies with a production of public goods. The barter contractual approach was developed in  and  for exchange economies; it is now modified and extended to the production economy. This includes hereby the introduction of a production contract and the adoption of known earlier notions: a web of contracts, coalitional domination for webs, a partial breaking of contracts, and so on. Thus specific notions of properly contractual and fuzzy contractual allocations for an economy with public goods are introduced and their equivalence with Lindahl equilibria is stated. These theorems can be interpreted as a new way of perfect competition presentation.     

On the dominance of capitalists leadership in a ‘Feedback-Stackelberg’ solution of a differential game model of capitalism

This paper deals with a modified version of the Lancaster model of capitalism, where it is assumed that there is a cost jointly borne by the two groups of players (workers versus capitalists) and associated with the bargaining of a larger share of consumption for the workers. It is shown that a Feedback- Stackelberg solution, with the capitalists acting as leaders and announcing their investment policy at the beginning of each period, is a solution dominating the Feedback-Nash solution. The paper is also intended to be a tutorial on the Feedback-Stackelberg solution, a concept not so often used by economic modelers.