Rates of return to public and private capital: new estimates using nonlinear Euler equations

Results obtained by Otto and Voss show that public investment undertaken in Australia over recent decades satisfies conditions for intertemporal efficiency. This paper confirms this result, although lower output elasticities and rates of return to private and public capital are obtained. The reason for these results is that the earlier work is extended by estimating the parameter related to the elasticity of intertemporal substitution that was earlier restricted to a specific value. In fact, it is shown here that it is possible to obtain an economically reasonable (and statistically significant) estimate of this parameter by assuming that the stochastic discount factor for the representative firm is the same as for the representative consumer and equal to a gross real interest rate.     

Retailing public goods: The economics of corporate social responsibility

This paper explores the feasibility and desirability of Corporate Social Responsibility (CSR). We identify CSR with creation of public goods or curtailment of public bads. Using a model with profit-maximizing firms, the paper shows that there is a direct parallel between CSR and traditional models of private provision of public goods. Indeed, firms that use CSR will produce public goods at exactly the same level as predicted by the standard voluntary contribution equilibrium for public goods. We compare CSR with government provision and charitable provision, discussing when CSR by private for-profit firms could have a comparative advantage in dealing with public goods provision.     

On the Neutrality of Redistribution in a General Equilibrium Model with Public Goods

Models on private provision of public goods typically involve a single private good and linear production technology for the public good. We study a model with several private goods and nonlinear (strictly concave) production technology. We revisit the question of „neutrality” of government interventions on equilibrium outcomes and show that relative price effects that are absent with a single private good and linear production technology become a powerful channel of redistribution in this case. Contrary to previous results, redistributing endowments in favor of contributors is shown to be neither necessary nor sufficient for increasing the equilibrium level of public good.     

On the Private Provision of Intertemporal Public Goods with Stock Effects

The provision of public goods is often hindered by a lack of powerful institutions that can sanction free riders or otherwise enforce private contributions to the public good. The simple deposit based solution introduced by Gerber and Wichardt (J Public Econ 93:429–439, 2009) solves this problem, but may require prohibitively large deposits, in particular in the context of intertemporal public goods. In this paper, we propose a modification of the deposit solution that relies only on comparably small deposits. The proposed modification improves the applicability of the procedure, most notably as it also allows to reduce deposits in static public goods problem by transforming them into dynamic ones with small per period contributions.     

Unemployment insurance and involuntary unemployment: The case of adverse selection

This paper studies the private and public provision of unemployment insurance in a model where equilibrium unemployment results from the use of the wage as a worker selection device. It is shown that private provision will not occur, essentially because those workers most desired by a firm place least value on such coverage. Respecting the same informational constraints, public provision necessarily gives rise to some distortions in participation decisions, but nonetheless is welfare improving in the aggregate.     

The Intergenerational Incidence of Government Spending*

This paper analyzes the effect of an increase in government spending on the welfare of different generations in a dynamic general equilibrium model. The paper shows that the intergenerational incidence of government spending on a public good is determined not only by the welfare effects due to the public good and to financing the good but also by a welfare effect due to intertemporal substitution between private consumption when government spending is increased. The degree of substitutability between private consumption and public spending is shown to be a key determinant of this incidence.     

Public Good Provision Under Monopolistic Competition

This paper presents a model of voluntary private provision of public good under monopolistic competition following Pecorino. Consumers prefer product varieties and a public good. Marginal utility of income depends inversely upon the aggregate consumption of private goods in this model. As population size increases, aggregate consumption of private goods goes up and marginal utility of income falls. This explains the positive relationship between population size and public good provision. Any technological changes in the production of private goods are shown to be neutral to the aggregate provision of public good. These results are in contrast to Pecorino.     

Unemployment Insurance under Moral Hazard and Limited Commitment: Public versus Private Provision

This paper analyzes a model of private unemployment insurance under limited commitment and a model of public unemployment insurance subject to moral hazard in an economy with a continuum of agents and an infinite time horizon. The dynamic and steady‐state properties of the optimum private unemployment insurance scheme are established. The interaction between public and private unemployment insurance schemes is examined. Examples are constructed to show that for some parameter values increased public insurance can reduce welfare by crowding out private insurance more than one‐to‐one and that for other parameter values a mix of both public and private insurance can be welfare maximizing.     

Economic Integration and Public Provision of Education

This paper develops a model of fiscal competition in public provision of a private good: education. In this framework, the welfare enhancing effects of public education provision are shown to be reduced by increased student mobility when, like in the EU, countries are unable to set differentiated fees to foreign students. Indeed, the threat of attraction of foreigners who free-ride on the national education system may induce suboptimal levels of public education provision when (price) discrimination is forbidden. Alternatively, countries may try to escape regulation and avoid equal treatment of foreign students. The paper provides some empirical evidence of the existence of a fiscal externality in education at the EU level.     

Public Versus Private Provision of Public Goods

It is well known that public goods are underprovided in a static setting with voluntary contributions. Public provision—in a median voter framework with proportional taxation—generally exceeds private provision. This paper compares private and public provision of public goods in a dynamic setting. In a dynamic setting, voluntary donations can result in efficient provision. Also, majority‐rule solutions exist even when taxes are not proportional to income. At low discount factors, public provision tends to exceed private provision. As patience increases, however, private provision may exceed public provision. This occurs because many outcomes with a low level of public good provision—and potentially large targeted transfer payments to particular individuals—become sustainable under public provision. Under private provision, however, large targeted transfers are unsustainable. To finance the public good, private provision tends to result in benefit taxation, and public provision tends to result in progressive taxation.     

Publicly Provided Private Goods and Redistribution: A General Equilibrium Analysis

Public provision of private goods is examined within a self-selection framework where production depends on labour supply of different households and the level of public provision. It is shown that productivity and wage-structure effects can create a role for public provision, even if preferences are weakly separable between goods and leisure. Public provision of education may offer an intuitively appealing case for the production-side impacts. We also address the reasons for public provision in a dynamic, overlapping generations economy, whereby public provision may affect efficiency and social costs of redistribution of future generations as well.
JEL classification : H 23; H 42     

Transitional Dynamics and Indeterminacy of Equilibria in an Endogenous Growth Model with a Public Input

The authors analyze an endogenous growth model with economy–wide increasing returns, in which a public input is essential for private production. Within such a framework, it is shown that a continuum of equilibria and global indeterminacy can arise for reasonable parameter values, simply due to the presence of endogenous public policy. This can potentially account for "leapfrogging" or retroceding growth experiences. It is demonstrated how fiscal policy can serve as a selection device among different convergent paths.     

Does Precommitment Raise Growth? The Dynamics of Growth and Fiscal Policy

We develop an endogenous growth model driven by externalities from both private and public capital. The government levies distortionary taxation to finance a publicly provided consumption good and public infrastructure. Firms face adjustment costs. We compare the optimal and time-consistent policies in a linear-quadratic approximation of the model. Although the time-consistent equilibrium is sub-optimal in terms of ex-ante intertemporal welfare, it yields higher long-run growth and welfare, through an accumulation of assets by the state and a cut in government consumption.     

Public provision of private child goods

This paper analyzes the public provision of private goods for children in a politico-economic model with endogenous fertility. The government provides every child with goods that can also be purchased by parents in private markets, and the level of provision is determined by majority rule. Households with many children benefit from the public provision more than those with fewer children; thus, a political conflict arises between them. The distribution of the number of children across households, which is a crucial factor for determining which group is politically dominant, is endogenously determined by households' fertility decision. The sequential interaction between fertility and political decisions might lead to multiple equilibria: equilibrium with high fertility and low-private/public-spending ratio and equilibrium with low fertility and high-private/public-spending ratio. Our model could explain the large differences in fertility and structure of child-related spending across countries.     

Toward an efficiency rationale for the public provision of private goods

Public provision of a private goods is justified on efficiency grounds in a model with no redistributive preferences. A government’s involvement in the provision of a private good generates information about preferences that facilitates more efficient revenue extraction for the provision of public goods. Public provision of the private good improves economic efficiency under a condition that is always fulfilled under independence and satisfied for an open set of joint distributions. The efficiency gains require that consumers cannot arbitrage the publicly provided private good, so our analysis applies to private goods where it is easy to keep track of the ultimate user, such as schooling and health care, but not to easily tradable consumer goods.     

Efficient Mechanisms for Public Goods with Use Exclusions

Constrained efficient provision of an excludable public good is studied in a model where preferences are private information. The provision level is asymptotically deterministic, making it possible to approximate the optimal mechanism with a mechanism that provides a fixed quantity of the good and charges fixed user fees for access. In general, the fixed fees involve third degree price discrimination, but, if names are uninformative about preferences, the analysis provides a justification for average cost pricing.     

Fiscal policy, long‐run growth, and welfare in a stock‐flow model of public goods

Abstract.  We introduce public capital and public services as inputs in an endogenous growth model. We show that the growth rate depends on the apportionment of tax revenues between the accumulation of public capital and the provision of public services. When public spending is financed by proportional income taxes, the growth rate, the level of public spending as a proportion of GDP, the level of investment in public capital as a proportion of total public spending, and the level of private investment as a proportion of total private spending all are lower in the equilibrium outcome than in the optimal outcome. JEL classification: E62, O40     

Group size paradox and public goods

In an economy with voluntarily provided public goods and private product varieties, and a general class of CES preferences, it is shown that aggregate public good contribution follows an inverted-U pattern with respect to group size when private and public goods are substitutable in preferences. With complementarity, however, aggregate provision grows monotonically with group size.     

Duopoly models with a joint capacity constraint

The paper proposes a two-stage mixed duopoly model of exhaustible resource market where at the first stage the government decides on the degree of privatization of public firm and at the second stage the public and private firms decide simultaneously on the two-period extraction paths. It is demonstrated that if the two firms have symmetric technologies with increasing marginal extraction costs and the same resource stocks, then neither full nationalization of any of the two firms nor full privatization will be socially desirable. It is shown that the presence of a semi-public firm improves intertemporal allocation of the fixed resource stock. Thus, partial privatization is optimal even under exogenously fixed total outputs of each firm. For asymmetric cost case, when the public firm is less efficient than the private firm, we derive the conditions under which full nationalization or full privatization is optimal.     

Dynamic Voluntary Provision of Public Goods and Optimal Steady-State Subsidies

This paper examines a differential game model of voluntary provision of a public good in which private agents' contributions accumulate over time and derives subsidy rules that achieve the socially efficient steady state. It is shown that the optimal subsidy rule is a simple one when agents use the open‐loop strategy, while under Markovian strategies it intricately depends on the parameters of the economy.