Country size and the voluntary provision of international public goods

Standard studies on voluntary contributions to an international public good treat national economies as if they were single agents. This masks the fact that nations are comprised of populations of citizens, whose collective benefits a national government takes account of when deciding on the amount of the contributions. This paper constructs a model which explicitly allows for the effect of population differences and explores their consequences. We can then present the so-called exploitation of the great by the small by Olson and Zeckhauser [Olson, M., Zeckhauser, R., 1966. An economic theory of alliances. Review of Economics and Statistics 48 (1966) 266–279] and explore how residents of larger countries fare relative to those in smaller countries. We also elaborate on the effects of changing populations and show that growing into a large country is not necessarily beneficial for the country's residents.     

Income and wealth heterogeneity in the voluntary provision of linear public goods

This paper examines the effect of income and wealth heterogeneity in the voluntary provision of a linear public good. We use models of inequality aversion and altruism to predict behavior in our setting. Our results are not consistent with these models, however; our experimental results suggest that less wealthy subjects give the same absolute amount (and more as a percentage of their income) as the more wealthy.     

Multinational public goods provision under multilateral income transfers and productivity differences

This article examines multinational public goods provision under multilateral income transfers and productivity differences across countries. Under a planner who uses linear approximation for utility maximization, we show that (1) a country is an income receiver if it has a higher productivity than the average in producing public goods, enabling it to provide more public goods; (2) the amount of transfers can be pinned down for all countries with an adjustment cost; (3) each country obtains an identical utility increment; and (4) the country with the lowest adjustment cost is the best candidate for the planner country. All results are derived based on well-known information regarding the cost of producing the public goods and income levels.     

Efficiency and group size in the voluntary provision of public goods with threshold preference

What is the optimal group size in the voluntary provision of public goods in a purely altruistic economy? The popular consensus on this fundamental question is that the free-rider problem worsens as the group size increases. This study provides a counterexample of the consensus by featuring plausible threshold preferences for certain typical public goods. Under these preferences, marginal utility hardly diminishes below a threshold level, but declines significantly in close proximity to the threshold and nearly drops to zero above the threshold. We find that threshold preferences significantly reduce inefficiency. We also show that if marginal costs increase, then the threshold preferences lead to a partly positive relationship between efficiency and group size, which allows us to detect the locally efficient group size. Moreover, the locally efficient group size is proportional to the slope of the marginal costs as well as the threshold of marginal utility.     

Public goods provision,inequality and taxes

The impact of redistributive policies on voluntary contributions is still not well understood. While a higher level of redistributive taxation decreases the price of voluntary giving, it also changes the income distribution by decreasing income inequality. This paper provides a controlled laboratory experiment to investigate the net impact of the tax rate on public goods provision. The experimental findings show that while the participants decrease their voluntary contributions as the pre-tax income distribution becomes more equal, they increase their contributions with taxation. These findings have important implications for government policies regarding privately provided public goods.     

Dynamic provision of public goods

Summary. This paper deals with implementing the efficient level of public good provision in a dynamic setting. First, we prove that when the good is provided in several stages, no sequence of Groves' mechanisms guarantees that agents will reveal their true valuations as a dominant strategy. The contribution of this paper is the characterization of those mechanisms which guarantee truthful revelation in this environment.Received: 30 December 2001, Revised: 27 March 2003, JEL Classification Numbers: D61, D78, D82, H41.This paper has greatly benefited from the ideas and comments of Sandro Brusco, Luis Corchón and Roberto Burguet. I would also like to thank José Alcalde, Luis J. Alías, Javier López-Cuñat, Juan Vicente Llinares, Ashley Piggins, Juan Perote and Antonio Quesada for very helpful suggestions. I am also grateful to an anonymous referee whose suggestions aided the quality of exposition in the paper and led me to Proposition 4.     

The public and private provision of pure public goods and the distortionary effects of income taxation: a political economy approach

Abstract .  A pure public good is provided by the government and the voluntary contributions of two types of households. The government finances its contribution by means of income taxation. The latter has distortionary effects. A third type of household never makes contributions. We analyse the effects of changes in the income tax rate on (a) the provision of the public good, (b) the private contributions of the households, and (c) changes in the distribution of income and welfare between contributing and non-contributing households. We derive a simple and testable condition under which the lowering of the income tax entails a Pareto improvement.     

A note on optimal income taxation,public goods provision and robust mechanism design

This paper extends the model of optimal income taxation due to Mirrlees (Mirrlees, J., 1971. An exploration in the theory of optimum income taxation. Review of Economic Studies 38, 175–208) and includes private information on public goods preferences. A mechanism design approach is used to establish the following result: If policies are required to be robustly implementable in the sense of Bergemann and Morris (Bergemann, D., Morris, S., 2005. Robust mechanism design. Econometrica 73, 1771–1813), then the optimality conditions in the extended model with uncertainty about tax and expenditure policies are the same as in the standard model of optimal income taxation. The paper provides a foundation for a widely-used assumption in public finance, namely that individuals optimize their behavior subject to a predetermined and commonly known tax system.     

On the private provision of public goods

We consider a general model of the non-cooperative provision of a public good. Under very weak assumptions there will always exist a unique Nash equilibrium in our model. A small redistribution of wealth among the contributing consumers will not change the equilibrium amount of the public good. However, larger redistributions of wealth will change the set of contributors and thereby change the equilibrium provision of the public good. We are able to characterize the properties and the comparative statics of the equilibrium in a quite complete way and to analyze the extent to which government provision of a public good ‘crowds out’ private contributions.     

Voluntariness and efficiency in the provision of public goods

This paper presents a characterization of Lindahl allocations which makes no reference to personalized prices. Lindahl equilibria are characterized here by two conditions: Pareto efficiency and a voluntariness condition. Voluntariness requires that no consumer may benefit from a reduction in his contribution if this means that the vector of public goods must be reduced in the same proportion. The intersection of the (large) set of voluntary allocations and that of efficient ones turns out to be (under differentiability) the set of Lindahl allocations.     

Private provision of discrete public goods

We investigate private provision of discrete public goods under refund and cost-sharing. If it is commonly believed that individuals may be warm-glow altruists and the group-size is a Poisson random variable, then the equilibrium distribution of collected contributions is uniquely determined. If composition uncertainty is very small and the expected group-size sufficiently large, the distribution of contributions can be described by concentrating in a symmetric mixed-strategy equilibrium. As the expected group-size increases, the probability a randomly selected player contributes and the associated expected number of contributions converge to the corresponding ones in the symmetric mixed-strategy equilibrium of the game with no uncertainty.     

Social network and private provision of public goods

Using a simple model with interdependent utilities, we study how social networks influence individual voluntary contributions to the provision of a public good. Departing from the standard model of public good provision, we assume that an agent’s utility has two terms: (a) ‘ego’-utility derived from the agent’s consumption of public and private goods, and (b) a social utility which is the sum of utility spillovers from other agents with whom the agent has social relationships. We establish conditions for the existence of a unique interior Nash equilibrium and describe the equilibrium in terms of network characteristics. We show that social network always has a positive effect on the provision of the public good. We also find that, in networks with “small world”-like modular structures, ‘bridging’ ties connecting distant parts of social network play an important role inducing an agent’s contribution to public good. Assumptions and results of the model are discussed in relation to the role of social capital in community-level development projects and to the effect of innovation networks on firms’ R&D investments.     

Effect of an audience in public goods provision

This paper investigates a novel public goods game where contributions to the public goods require effort that is observable. When the players are observed, they exert more effort to contribute to the public goods, and free-riding diminishes significantly compared to the no observer case. These effects are absent when no effort is required in order to contribute to the public goods. Furthermore, in the presence of an audience, the contributions to the public goods do not diminish when the game is repeated in the effort-required environment. Being observed does not affect the performance of the players if there is no strategic aspect of the game, in other words, when they play a private goods game. These results indicate that an individual wants to avoid appearing lazy when her effort helps the society.     

Local governance and public goods provision in rural China

In developing countries, identifying the most effective community-level governance mode is a key issue in rural development; therefore, empirical evaluation of these different modes is desperately needed. Since the 1980s, tens of thousands of villages in rural China have held local government elections, providing a good opportunity to investigate the effect of democratization on the level of public goods provision. Using a recent village survey conducted over a significant period of time, this article compares two different governance modes. It finds that elections affect little on the size of revenue but significantly shift the distribution of taxation from individuals to enterprises if possible. However, privatization has made taxation or levies on rural enterprises more difficult. It also shows that elections and power sharing are conducive to improve the allocation of public expenditures.     

On commodity tax harmonization and public goods provision

This paper argues that Pareto improvements based on harmonizing tax reforms expressed in terms of the divergence between actual and optimal tax structures and over/under provision of public goods require the use of ‘pseudo-optimal’ taxes instead of optimal ones. ‘Pseudo-optimal’ taxes are defined as those obtained using the optimal tax formulas but evaluated at any arbitrary initial tax structure. Within this context the paper reconfirms existing results showing that tax harmonization emerges as a strong policy instrument in achieving a potential Pareto-improvement.     

Fixed versus variable supply in the public provision of goods

Using discriminatory price auctions with variable supply, we explore a situation in which a corruptible public employee is in charge of producing and allocating a finite number of goods among consumers with uniformly distributed valuations. The negative effects of corruption are lower when the employee‘s task is to “provide at least q₀ goods” than when the employee is required to “provide exactly q₀ goods”.     

Participation and the provision of discrete public goods: a strategic analysis

This paper considers the Nash equilibria to a game where a discrete public good is to be provided. Each individual may participate by making a fixed contribution. If a sufficient number of contributions are made, the good is provided. Otherwise, the good is not provided. One variant of the rules allows for contributions to be refunded when the good is not provided. For pure strategies, we find that the Nash equilibria with a refund are a superset of those without a refund. For both rules, the efficient number of players contributing is an equilibrium. For mixed strategies, to every equilibrium without a refund there is a corresponding equilibrium with a refund with a higher number of expected contributors. Mixed strategy equilibria ‘disappear’ as the number of players grows large. Some results reported in the experimental literature are discussed in light of these theoretical results.     

Depreciation and intergenerational altruism in the private provision of public goods

The static model of the private provision of public goods is refuted by empirical and experimental evidence which shows that contributions are above the levels predicted by the theory. The model is reconsidered here in an intertemporal framework that allows the formation of a stock of public good over time and admits intergenerational altruism into preferences. Both of these factors affect the level of private provision. An intertemporal version of the Samuelson rule is derived and it is shown that, for some parameter values, the provision level determined by this is matched by private provision. For other parameter values, it is shown how a system of taxation can achieve the optimum.     

Minimum participation rules for the provision of public goods

This paper considers the endogenous formation of an institution to provide a public good. If the institution governs only its members, players have an incentive to free ride on the institution formation of others and the social dilemma is simply shifted to a higher level. Addressing this second-order social dilemma, we study the effectiveness of three different minimum participation requirements: (1) full participation/unanimity rule; (2) partial participation; (3) unanimity first and in case of failure partial participation. While unanimity is most effective once established, one might suspect that a weaker minimum participation rule is preferable in practice as it might facilitate the formation of the institution. The data of our laboratory experiment do not support this latter view, though. In fact, weakening the participation requirement does not increase the number of implemented institutions. Thus, we conclude that the most effective participation requirement is the unanimity rule which leaves no room for free riding on either level of the social dilemma.