Coordination and the Provision of Discrete Public Goods by Correlated Equilibria

The strategic analysis of the private provision of a discrete public good has shown the existence of multiple Nash equilibria with the efficient number of players voluntarily contributing. However the coordination issue is left unexplained by this literature. The experimental evidence shows that communication among players is helpful in achieving cooperation. We claim that, from the theoretical point of view, this is equivalent to playing correlated equilibria in an extended public good game with communication, modeled as Chicken. We characterize such equilibria as feasible coordination mechanisms to achieve public goods provision in the general contribution game. We further introduce a second kind of game characterized by payoff externalities that may persist after the minimal threshold of contributors is achieved. While it is easy to show the existence of Pareto efficient correlated equilibria in the first game, in the second one players face incentive problems such that a first best cannot always be an equilibrium. Nevertheless there exist correlated equilibria that can qualify as incentive efficient mechanisms, once free riding is seen as a moral hazard issue. Finally, with an example, we discuss the impact of coalition formation in our framework.     

Exchange Rules and the Incentive Compatibility of Choice Experiments

The incentive properties of stated-preference surveys continue to be a central debate in the valuation of public goods. The majority of empirical studies have focused on incentive properties of contingent valuation questions in relation to situations where answers have monetary consequences. This research explores the incentive properties of repeated, attribute-based choice questions when subjects are provided with an explicit connection between choices and outcomes. Two market/provision-rules are investigated: a posted-price market and a plurality-rule vote. These two provision rules are contrasted to treatments in which no provision rule is discussed—subjects are simply asked to choose their preferred alternative. These three hypothetical choice treatments are compared with a binding choice treatment. While none of the public good treatments are theoretically incentive compatible, we include a comparison of hypothetical and binding choices for a private-good that is incentive compatible. The private good experiments indicate that marginal willingness to pay (WTP) estimates from the hypothetical treatment are larger, but not statistically different than corresponding estimates in the binding choice treatment. Results for the public good experiments indicate that marginal WTP estimates from the hypothetical treatments are much larger, and statistically different than corresponding estimates in the binding choice treatment. The bias is largest when no provision rule is discussed. The bias is reduced with the inclusion of a provision rule, but surprisingly, there was no difference across provision rule treatments. Overall, our results indicate that choice experiments involving a public good should include a provision rule to reduce bias, but the resulting marginal WTP estimates may still be more biased, on average, than those arising from contingent valuation survey formats.     

On the Private Provision of Two or More Public Goods

We extend the simple model of voluntary public good provision to allow for two or more public goods, and explore the new possibilities that arise in this setting. We show that, when there are many public goods, voluntary contribution equilibrium typically generates, not only too low a level of public good provision, but also the wrong mix of public goods. We also analyze the neutrality property in the more general setting, and extend a neutrality proposition of Bergstrom, Blume, and Varian (1986) .     

Optimal Income Taxation and Public Good Provision with Endogenous Interest Groups

This paper studies public goods provision when agents differ in earning abilities as well as preferences. Heterogeneity in skills makes redistribution desirable and generates an equity-efficiency trade-off. If tax revenues are devoted to a public good, this trade-off is affected in such a way that income transfers are less desirable. High-skilled individuals thus have an incentive to exaggerate their preferences for public goods. Analogously, low-skilled individuals lobby against public good provision. A requirement of collective incentive compatibility eliminates these biases. It implies that income transfers are increased whenever a public good is provided and are decreased otherwise.     

Finitely Repeated Voluntary Provision of a Public Good

This paper theoretically explores the voluntary provision of a public good when either one of the following holds: (i) agents’ utility is the sum of their monetary earnings and a nonmaterial component, or (ii) agents’ exhibit satisficing behavior. We show that a small degree of either nonmaterial payoffs or satisficing behavior can generate large contributions in a finitely repeated game, even if the incentive to free‐ride on others’ contributions calls for negligible public good provision in the static game. The equilibrium is characterized by a sharp decline in contributions toward the end of the game. Several comparative results regarding group size and technology are consistent with laboratory data obtained in experimental studies. The model also predicts the restart effect observed in previous experiments.     

A general characterization of interim efficient mechanisms for independent linear environments

We consider the class of Bayesian environments with independent types, and utility functions which are both quasi-linear in a private good and linear in a one-dimensional private-value type parameter. We call these independent linear environments. For these environments, we fully characterize interim efficient allocation rules which satisfy interim incentive compatibility and interim individual rationality constraints. We also prove that they correspond to decision rules based on virtual surplus maximization, together with the appropriate incentive taxes. We illustrate these techniques with applications to auction design and public good provision.     

An analysis of public adaptation to climate change using agricultural water schemes in South America

This paper provides an analysis of public adaptation to climate change using agricultural water schemes in South American farms. Unlike other studies of adaptation, this paper examines the differences between private irrigation and public irrigation schemes based on around 1400 farm surveys collected across seven countries in South America which recorded detailed water schemes. We analyze the choice of water schemes in the first stage and the land values for each scheme in the second stage. We find that public irrigations do not increase in response to a warmer climate, but private irrigations do. On the other hand, we find that public irrigation schemes are provided primarily as a response to water scarcity. Moreover, we find that private irrigations are taken gradually while public irrigations are provided as a lump sum, resulting in either too much or too little provision. Therefore, public adaptations to climate change will likely involve two inefficiencies. No provision of irrigation in a hotter climate may result from a lack of knowledge. Overprovision of irrigation in dry zones may result from a lump-sum provision of a public good.     

Woodsy the optimal owl: Environmental campaigns, norms, and implications for public goods policy

Norms regarding private provision of a public good (e.g. cutting down on energy use, not littering) can affect the marginal gains from contributing to a public good and therefore people's decisions about contributing to the public good. A model is proposed in which norms of private contributions to a public good can be influenced by public policy, and these norms affect people's self-image, which derives from a comparison of one's own contribution with the norm contribution. In this context, we examine the conditions under which private contributions to a public good are efficient, and the conditions under which policy affecting these norms improves social welfare. We find that (1) a benevolent social planner who fails to account for private provision norms will underprovide the public good, and (2) public policy that attempts to raise the norm contribution of private provision can increase social welfare if the effect of raising the norm does not have an extreme negative effect - either extremely small or extremely large - on peoples' self-image.     

Non‐Governmental Public Norm Enforcement in Large Societies as a Two‐Stage Game of Voluntary Public Good Provision

In small groups, norm enforcement is achieved through mutual punishment and reward. In large societies, norms are enforced by specialists such as government officials. However, not every public cause is overseen by states, for instance those organized at the international level. This paper shows how nongovernmental norm enforcement can emerge as a decentralized equilibrium. As a first stage, individuals voluntarily contribute to a nongovernmental agency that produces an incentive system. The second stage is the provision of a public good on the basis of private contributions. The incentive system increases contributions by means of public approval or disapproval of behavior. It is shown that, even in large populations, nongovernmental norm enforcement can be supported in a noncooperative equilibrium of utility‐maximizing individuals. This result is in sharp contrast to those obtained in the standard situation of voluntary provision of an intrinsic public good which—without altruism or related motives—is eroded by free‐riding. Reliance on altruistic behavior is not required in supplying the second‐order public good “norm enforcement” in large societies.     

Public goods and optimal paternalism under present-biased preferences

This paper concerns the provision of a state-variable public good in a two-type model under present-biased consumer preferences. The preference for immediate gratification facing the high-ability type weakens the incentive to adjust public provision in response to the self-selection constraint.     

Public goods with congestion

I consider the problem of the efficient provision of a congested (limited capacity) public good in a setting with asymmetric information. I show, in particular, that when the capacity of the good is limited, in a wide class of economies it is possible to construct an incentive compatible mechanism that always produces the good at the efficient level, balances the budget and satisfies voluntary participation constraints. This result is in contrast with the corresponding impossibility result for pure public goods due to Mailath and Postlewaite (Rev. Econ. Stud. 57 (1990) 351-359) and Rob (J. Econ. Theory 47 (1989) 307-333).     

Private Provisions of a Discrete Public Good with Voluntary Participation

This paper studies the mechanism that a profit-making principal should adopt to provide a discrete public good when the values of the consumers are their private information and their participation is voluntary. The free-riding issue is resolved through threatened nonprovision of the good by the provider. Every bidder is asked to announce his or her virtual value as defined in Myerson (1981) . The public good is provided if and only if the sum of the bidders' announced virtual values exceeds the provision cost. When a provision decision results, each bidder pays an amount that is determined by the announcement of other consumers. No one pays when a nonprovision decision results. We find that this mechanism is implementable through an all-pay auction. A restricted profit-maximizing mechanism that implements efficient allocation is also characterized. As in Gradstein (1994) , when provision is always efficient, that is, the sum of consumers' values always exceeds the provision cost, efficient allocation is achievable through a profit-maximizer. However, this is not the case when provision is not efficient.     

Private provision of a discrete public good: efficient equilibria in the private-information contribution game

We study the voluntary provision of a discrete public good via the contribution game. Players independently and simultaneously make nonrefundable contributions to fund a discrete public good, which is provided if and only if contributions cover the cost of production. We characterize nonconstant continuous symmetric equilibria, giving sufficient conditions for their existence. We show the common normalization by which players’ values are distributed over [0, 1] is not without loss of generality: if the distribution over this interval has continuous density f with f(0) >  0, then no (nonconstant) continuous symmetric equilibrium exists. We study in detail the case in which players’ private values are uniformly distributed, showing that, generically, when one continuous equilibrium exists, a continuum of continuous equilibria exists. For any given cost of the good, multiple continuous equilibria cannot be Pareto ranked. Nevertheless, not all continuous equilibria are interim incentive efficient. The set of interim incentive efficient equilibria is exactly determined. The authors thank Manfred Dix, George Mailath, Andrew Postlewaite, and an anonymous referee for their comments.     

The Political Economy of Intellectual Property Treaties

Intellectual property treaties create two types of obligations:for national treatment of foreign inventors and for certainharmonized protections. I investigate both the incentive tojoin such treaties and the incentive to harmonize. As comparedto an equilibrium in which the countries' policy makers makeindependent choices, harmonization will generally strengthenprotections. This analysis recognizes that public sponsorshipis sometimes an efficient alternative to intellectual property.However, there are no institutions to harmonize public spending,and there are no international mechanisms to repatriate thespillovers it generates. As a consequence, there may be toolittle public sponsorship and too much intellectual property.A country's inclination to strengthen harmonized protectionswill depend both on its innovativeness (positively) and on thesize of its domestic market (negatively).     

Public-Good Provision with Many Participants

For a nonexcludable public good with benefit and cost functions independent of the number of participants, this paper studies second-best allocations under Bayesian interim incentive compatibility and interim individual rationality. As the number of participants becomes large, second-best provision levels converge in distribution to first-best levels if the latter are bounded. Second-best provision levels become large in absolute terms but small relative to first-best levels if benefit and cost functions are isoelastic. In contrast, for an excludable public good, the ratio of second-best to first-best levels is bounded away from zero.     

Optimal democratic mechanisms for taxation and public good provision

We study the interdependence of optimal tax and expenditure policies. An optimal policy requires that information on preferences is made available. We first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system. We then study democratic mechanisms with the property that tax payers vote over public goods. Under such a mechanism, efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases.     

Parallelism in the Lab and the Field: Testing Robustness of the Minimum‐Contributing‐Set Mechanism

Efforts to "test" public‐goods provision mechanisms in field settings encounter a fundamental obstacle: investigators cannot determine whether the aggregate valuation of the public good exceeds the cost. Experimental laboratory settings can fix the provision of the public good to be efficient. This allows investigation of the performance of the mechanism under potential field settings. This paper reports the results of a set of laboratory experiments designed to test the robustness of the minimum‐contributing‐set (MCS) mechanism to field conditions. The reported results support further use and investigation of the MCS mechanism for the provision of step‐level public goods.     

Local public goods, inter-regional transfers and private information

Suppose that the centre wishes to make transfers between member states of a federation to reduce inequality. However, it lacks precise information concerning the cost differences that are responsible for the initial income inequality. We examine the implications of asymmetric information for the design of the transfer scheme. We show that if member states’ inherent cost levels as local public good providers take discrete values, the first best, or ‘complete information’, transfer scheme may or may not violate incentive compatibility. If inherent cost is a continuous random variable, such a scheme certainly violates incentive compatibility. We also explore the possibility of binding participation constraints. In our model, a binding incentive compatibility constraint leads to a reduction in effort devoted to cost reduction, and a binding participation constraint will also lead to a violation of Samuelson's optimality condition for public good provision.     

Voluntary Participation and Spite in Public Good Provision Experiments: An International Comparison

This paper studies voluntary public good provision in the laboratory, in a cross-cultural experiment conducted in the United States and Japan. Our environment differs from the standard voluntary contribution mechanism because subjects first decide whether or not to participate in providing this non-excludable public good. This participation decision is conveyed to the other subject prior to the subjects' contribution decisions. We find that only the American data are consistent with the evolutionary-stable-strategy Nash equilibrium predictions, and that behavior is significantly different across countries. Japanese subjects are more likely to act spitefully in the early periods of the experiment, even though our design changes subject pairings each period so that no two subjects ever interact twice. Surprisingly, this spiteful behavior eventually leads to more efficient public good contributions for Japanese subjects than for American subjects.