Commitment and matching contributions to public goods

We study multi-stage processes of non-cooperative voluntary provision of public goods. In the first stage, one or more players announce contributions that may be conditional on the subsequent contributions of others. In later stages, players choose their own contributions and fulfill any commitments made in the first stage. Equilibrium contributions are characterized under different assumptions about the commitment ability of players, the number of public goods and whether players commit to matching rates or to discrete quantities. We focus on contribution mechanisms that can emerge and be sustainable without a central authority, and that may be particularly relevant for international public goods. Efficient levels of public goods can be achieved under some circumstances, while in others commitment is ineffective.     

On the consistency of conjectures with public goods

This note addresses Sugden's criticisms, levelled against our Non-Nash theory for public goods. In particular, we argue that our previous exercise was not to present a theory of public goods that could escape the voluntary contribution problem by relaxing Nash conjectures. Rather, our non-Nash model was merely an analytical exercise, meant to encompass a widevariety of behaviour. This note also indicates when positive conjectures might be realistic and, therefore, potentially consistent. Finally, we extend our specific example to include negative, zero, and positive conjectures.     

Rational conjectures and evolutionary beliefs in public goods games

This paper applies conjectural variations (CVs) to a model of public good provision and shows that CVs are superior to Nash beliefs. In addition to imposing consistency, as Bresnahan, I show that consistent conjectures (CCs) are obtained from individual payoff maximization. CCs emerge as the unique subgame perfect Nash equilibrium (NE) in a two-stage game in which beliefs are chosen in Stage 1 and quantities in Stage 2. There is an individual payoff advantage to non-Nash behavior, generating a Prisoner's Dilemma in conjectures in addition to the usual free-rider problem associated with public goods. The correct and payoff maximizing conjecture is the unique equilibrium in an evolutionary framework against a player with Nash conjectures. The consistent conjecture equilibrium is the unique evolutionary equilibrium when both players conjectures evolve. Hence, the NE prediction is too optimistic when players have rational conjectures.     

Leadership and motivation for public goods contributions

Results from a leader–follower public goods game are presented. An individual, when randomly selected to make a contribution knowing others will observe the selection, gives more than in the simultaneous‐move public goods game. Followers adopt a quasi‐matching strategy where they systematically donate less than the leader, but contribute more when the leader does and contribute less when the leader free rides. The net result is increased provision of a public good when contributions are sequential. The results highlight that psychological preferences, rather than solely social preferences, can explain behavior.     

Sequential vs. simultaneous contributions to public goods: Experimental evidence

We report an experiment comparing sequential and simultaneous contributions to a public good in a quasi-linear two-person setting. In one parameterization we find that overall provision is lower under sequential than simultaneous contributions, as predicted, but the distribution of contributions is not as extreme as predicted and first movers do not attain their predicted first-mover advantage. In another parameterization we again find that the distribution of contributions is not as predicted when the first mover is predicted to free ride, but we find strong support for equilibrium predictions when the second mover is predicted to free ride. These results can be explained by second movers' willingness to punish first movers who free ride, and unwillingness to reward first movers who contribute.     

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.     

Common fate,game harmony and contributions to public goods: experimental evidence

We experimentally study the effects of common fate on voluntary contributions to linear public goods. In each period, earnings are assigned to subjects according to the outcome of a lottery. In ‘common fate’, ‘independent fate’ and ‘rival fate’ treatments, the lottery outcomes of group members are (respectively) positively correlated, stochastically independent and negatively correlated. We observe the highest contributions and strongest reciprocity under common fate. Contrary to the game harmony hypothesis, contributions are not lower under rival fate than under independent fate. Surprisingly, under rival fate, having won the lottery in one period induces higher contributions in the next period.     

A further look at consistent conjectures and private provision of public goods

A model of private provision of a public good under conjectural variations is discussed and the rule for a symmetric consistent conjectures equilibrium (CCE) derived. It is shown that in a number of reasonable cases symmetric CCEs fail to exist in economies with identical individuals, while there may exist asymmetric ones. The relevance of these results for the use of the conjectural variations approach in public good theory is then discussed together with some suggestions for further research.     

The theory of public goods: non-nash behaviour

Most treatments of equilibrium public goods provision assume zero conjectural variations in the sense that each individual regards the behaviour of the rest of the community as independent of his own. This paper introduces nonzero conjectural variations into the model. A diagram is introduced which can depict both the individual's and the community's equilibrium in the presence of nonzero conjectural variations. Equilibrium and optimal outcomes are compared, and a specific functional form is used to investigate the effect of community size on the nature of equilibrium. Finally, we discuss the requirement that conjectures should be consistent.     

The Italian approach to the theory of public goods *

Abstract

The subject of needs is the centre of attention of Italian public finance scholars. The financial activity of the State is justified by the existence of collective or public needs to whose satisfaction collective or public goods and services are linked. Italian economists have studied the problems of public goods in a general context, taking into consideration concurrently both taxes and public expenditure and giving prominence to positive analysis. Italian theorists have always been far removed from the classical approach, which denies the productivity of public services, and have deemed it necessary to take into account the political context in which fiscal structures operate. Their models include the State as a major factor. Herein lies the main value of the Italian tradition in public finance, which puts in coercion into the market mechanism via State intervention.     

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.     

The theory of public goods: Misplaced emphasis?

The note takes up for critical examination the tendency in the modern theory of public goods to emphasize the problem of correct revelation or concealment of preferences. It is argued that a strategy which consists in playing down one's preferences for a public good in order to get a lower share in the costs of providing the good is not likely to succed in an open political decision-making process involving elected representatives. This conclusion is supported by the fact that there seems to be little empirical evidence which shows the importance of the preference revelation issue.     

Endogenous timing and income inequality in the voluntary provision of public goods: Theory and experiment

This study theoretically and experimentally investigates the effects of income inequality on donors' decisions regarding timing choices and contributions to public goods when contribution timing is endogenously chosen by contributors. To this end, we use the conventional voluntary provision models of Warr (1983) and Bergstrom, Blume and Varian (1986), with Cobb–Douglas preferences augmented with a two-stage game of Hamilton and Slutsky (1990). The following results were obtained and experimentally confirmed. First, when the distribution of income is extremely unequal, donors are indifferent between the simultaneous and sequential moves in the contribution game. Second, as income inequality is decreased, the simultaneous-move contribution game is likely to emerge because every donor prefers to act as a leader. Nevertheless, a higher-income donor may also prefer to act as a follower without specific social preferences and uncertainty regarding the quality of public goods. Third, most theoretical predictions regarding timing decisions are supported in our laboratory experiment, provided that the participants had enough time to learn the consequences of their timing choices.     

From theory to practice: Canadian economists’ contributions to public finance

We survey Canadian economists’ contributions to the field of public finance from the mid‐1980s to 2016. We highlight the development and extension of the models and tools of public economics and the empirical studies that have deepened our understanding of the efficiency and distributional issues over a wide range of public finance issues. We also highlight contributions to the development of policies through commissioned reports and the important role that Canadian institutions—the Canadian Tax Foundation, the think tanks and the federal and provincial departments of finance—have played in shaping tax and fiscal policies.     

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.     

Voting and paying for public goods: An application of the theory of the core

Let any coalition with a majority of all voters have the power to choose the quantities of public goods. Under Rule I a majority coalition bears a cost of its decision that is proportional to its size. Under Rule II it must bear the whole cost of its decision. Thus, Rule I imposes costs on minorities although they have no power to choose the quantities of public goods while Rule II allows goods to have some attributes of semiprivate goods. It is shown that a nonempty core under Rule I implies a nonempty core under Rule II, but not conversely. Necessary and sufficient conditions in terms of the properties of the von Neumann-Morgenstern characteristic function are given.     

VCM or PPM? A comparison of the performance of two voluntary public goods mechanisms

Little progress has been made toward understanding the relative performance of the two mechanisms most widely used for fundraising: the Voluntary Contribution (VCM) and Provision Point (PPM) mechanisms. This paper provides direct comparisons of the relative performance of variants of the VCM and PPM as they are most commonly implemented in the field. The research makes use of 1296 individual observations from 721 subjects, including 40 observations from a field experiment. A meta-analysis of the determinants of contribution levels and bootstrap estimates of the relative efficiency of the two mechanisms provide novel analyses of public goods experimental data. Overall, the PPM is found to increase total contributions, to be more responsive to changes in induced value, and to be generally more efficient than the VCM. For public goods with a benefit-cost ratio in the interval [1, 1.4), however, the VCM captures a greater portion of available benefits than the PPM.     

Voluntary contributions when the public good is not necessarily normal

We argue that there are interesting examples of privately provided public goods that do not satisfy the assumption of strict normality, and reconsider voluntary-contribution games in a more general framework. We show that, in general, (1) equalizing transfers between individuals with identical tastes can increase total supply of the public good, and (2) more of the public good can be supplied if agents move sequentially rather than simultaneously. These results are in sharp contrast to earlier conclusions derived in the literature under the assumption of strict normality.