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.     

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.     

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.     

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.     

A pigovian rule for the optimum provision of public goods

The integrated treatment of optimal taxation and public expenditure presented here is based on the dual relationship between the prices of private goods and the quantities of public goods. The conditions for optimum public good provision can be expressed as a modification of the Samuelson conditions with extra terms representing (a) the distortionary effect of taxes on the willingness to pay for the public good, and (b) distributional effects. The former captures Pigou's notion of the indirect damage caused by the need to finance public expenditure out of distortionary taxes, and we call this the ‘Pigou term’. In certain cases a very simple benefit-cost ratio for public projects emerges that is equivalent to measuring benefits as if they were taxed.     

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.     

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.     

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.     

公共物品非营利组织供给的经济学分析

非营利性组织可以弥补政府和市场在公共物品提供上的不足。文章分析了非营利性组织提供公共物品的必要性，深入探讨了我国非营利组织提供公共物品时存在的主要问题，在此基础上，提出了一些对策和建议，以更好地发挥我国非营利性组织的公共物品提供中的作用。     

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.     

The strategy-proof provision of public goods under congestion and crowding preferences

We examine the strategy-proof provision of excludable public goods when agents care about the number of other consumers. We show that strategy-proof and efficient social choice functions satisfying an outsider independence condition must always assign a fixed number of consumers, regardless of individual desires to participate. A hierarchical rule selects participants and a generalized median rule selects the level of the public good. Under heterogeneity in agents’ views on the optimal number of consumers, strategy-proof, efficient, and outsider independent social choice functions are much more limited and in an important case must be dictatorial.     

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”.     

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.     

Non-monotonic group-size effect in repeated provision of public goods

This paper analyzes the effect of a change in group size on incentives to contribute in repeated provision of pure public goods. We develop a model in which group members interact repeatedly, and might be temporarily unable to contribute to public goods production during some periods. We show that an increase in the group size generates two opposite effects – the standard free-riding effect that suppresses cooperation, and the novel large-scale effect that enhances cooperation. Our results indicate that the former effect dominates in relatively large groups while the latter dominates in relatively small groups. We, therefore, provide a rationale for a non-monotonic group-size effect that may explain previous empirical and experimental findings.     

On the marginal cost of public funds and the optimal provision of public goods

This paper argues that, in models with heterogeneous agents, the concept of the marginal cost of public funds (MCPF) will only be useful if it is compared with an analogous concept for the benefit side. The MCPF does not assume a unique value and is not particularly illuminating in and out of itself. Also gone is the benchmark status of MCPF = 1. Turning to the provision of public goods, using a mechanism design approach, the paper constructs a two-stage proof for Kaplow's [Kaplow, L., 1996. The optimal supply of public goods and the distortionary cost of taxation. National Tax Journal 49, 513–533.] proposition concerning the “irrelevance” of labor supply and distributional concerns in public good provision. This highlights the two fundamental ingredients for his result. First, the provision of public goods per se, when it satisfies the Samuelson's rule, is only potentially Pareto-improving. Second, the actual Pareto improvement will materialize when, or if, one reforms the income tax structure. If the reform is not forthcoming, the decision on public goods provision must rely on redistributional concerns. Finally, the paper generalizes Broadway and Keen's [Boadway, R., Keen, M., 1993. Public goods, self-selection and optimal income taxation. International Economic Review 34, 463–478.] result to a model with many types of agents, many private goods and without making any assumptions regarding which self-selection constraints are or are not binding.     

Strategy-proof allocation mechanisms for economies with public goods

We show that strategy-proof allocation mechanisms for economies with public goods are dictatorial—i.e., they always select an allocation in their range that maximizes the welfare of the same single individual (the dictator). Further, strategy-proof and efficient allocation mechanisms are strongly dictatorial—i.e., they select the dictator’s preferred allocation on the entire feasible set. Thus, our results reveal the extent to which the conflict between individual incentives and other properties that may be deemed desirable (e.g., fairness, equal treatment, distributive justice) pervades resource allocation problems.     

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.