Stable partnerships, matching, and local public goods

In the presence of local public goods differences in tastes are an important determinant of the way in which partnerships are formed. Heterogeneity in tastes for private vs. public goods produces a tendency to positive assortment and partnerships of couples with similar tastes; heterogeneity in tastes for different public goods brings about partnerships of couples with similar tastes only if there is a significant overlap in the distribution of tastes of the two groups to be matched. We show that with two public goods we may get negative assortment, pure positive assortment being only one of many possibilities.     

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.     

Weakest-link public goods: Giving in-kind or transferring money

This paper extends the analysis of weakest-link public goods, whose level equals the smallest of the agents’ provision levels, by permitting an agent either to increase one's own provision or else augment both one's own provision and that of the other agent(s). Nash equilibria may be either symmetric with agents matching one another's provision or else asymmetric with an in-kind transfer by one agent to another. An equilibrium with cash transfers, but no in-kind transfers, may be Pareto superior to one with only in-kind transfers. If agents differ in their efficiency, then in-kind transfers by the low-cost agent may dominate a cash transfer. The possibility of Pareto-improving transfers is enhanced as the number of agents increases.     

Core equivalence with congested public goods

Summary This paper examines a model of an infinite production economy with a finite number of types of agents andsemi- public goods, which are subjected to crowding and exclusion. The utility of an agent depends not only on the vector of public commodities produced by the coalition to which she belongs, but also on the mass of agents of her type who are the members of this coalition. The main purpose of the paper is to derive necessary and sufficient conditions on the local degrees of congestion which would guarantee the equivalence between the core and the set of equal treatment Lindahl equilibria. We prove that this equivalence holdsif and only if there are constant returns to group size for each type of agents. It implies that linearity of each agent's congestion function with respect to the mass of the agents of her own type is necessary for the core equivalence to hold.The final version of this paper was written while Shlomo Weber was visiting the Technical University of Dresden as the Fellow of the Alexander von Humboldt Foundation, whose support is gratefully acknowledged. The authors are grateful to Peter Meyer, Nicholas Yannelis and the anonymous referees for useful remarks and suggestions.     

Location and ownership of public goods

We introduce location choice for the public good in the property rights framework. We find that it can be optimal to separate location from ownership.     

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.     

Efficiency, monotonicity and rationality in public goods economies

Summary. In economies with public goods, we identify a necessary and sufficient condition for the existence of cost monotonic, Pareto optimal and individually rational mechanisms. These exist if and only if the preferences of the agents satisfy what we call the equal ordering property. We also show that when this condition holds the egalitarian equivalent correspondence is the only cost monotonic selection from the core of the economy. Furthermore, it is unambiguous in the sense that the agents are indifferent among all the allocations in it. Received: February 26, 1996; revised version: January 31, 1997     

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.     

Foreign aid and weakest-link international public goods: An experimental study

In this paper, we investigate efficiency differences between income and in-kind transfers as distribution mechanisms of foreign aid to weakest-link international public goods in a laboratory environment. We find that if there is relatively small difference in country size, then income transfers seem to provide a higher provision of the international public good, and thus higher overall welfare level than that of in-kind transfers. However, if there is a large disparity in country size, then in-kind transfers appear to provide a higher level of IPG provision and higher accompanying global welfare.     

Optimal ownership of public goods reconsidered

Consider a non-governmental organization (NGO) that can invest in a public good. Should the government or the NGO own the public project? In an incomplete contracting framework with split-the-difference bargaining, Besley and Ghatak (2001) argue that the party who values the public good most should be the owner. We demonstrate the robustness of their insight when the split-the-difference rule is replaced by the deal-me-out solution. Our finding is in contrast to the private good results of Chiu (1998) and De Meza and Lockwood (1998), who show that the optimal ownership structure crucially depends on whether the split-the-difference rule or the deal-me-out solution is used.     

The benefits of voluntary leadership in experimental public goods games

We study the effects of voluntary leadership in experimental public goods games when each group member can volunteer to contribute before the other members. We find that voluntary leadership increases contributions significantly, compared to a treatment where leadership is enforced exogenously.     

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).     

Decentralization of Pareto optima in economies with public projects,nonessential private goods and convex costs

Summary In the theory of economies with public goods one usually considers the case in which private goods are essential, i.e., each agent receives a fixed minimum level of utility if he consumes no private goods, irrespective of the public goods consumed. This paper develops the second welfare theorem for economies with public projects and possibly inessential private goods. As a corollary we also derive conditions under which valuation equilibria exist.hank Dolf Talman and an anonymous referee for many useful remarks and annotations of a previous draft of this paper.     

Cooperation under the threat of expulsion in a public goods experiment

In a public goods experiment with the opportunity to vote to expel members of a group, we found that contributions rose to nearly 100% of endowments with significantly higher efficiency compared with a no-expulsion baseline. Our findings support the intuition that the threat of expulsion or ostracism is a device that helps some groups to provide public goods.     

The dual nature of public goods and congestion: the role of fiscal policy revisited

Abstract The role of fiscal policy is examined when public goods provide both productive and utility services. In the presence of congestion, the consumption tax is shown to be distortionary. Optimal fiscal policy involves using consumption‐based instruments in conjunction with the income tax. An income tax‐financed increase in government spending dominates both lump‐sum and consumption tax‐financing. Replacing the lump‐sum tax with an income tax to finance a given level of spending dominates introducing an equivalent consumption tax. These results contrast sharply with the literature, where the consumption tax is generally viewed as the least distortionary source of public finance.     

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.     

Reliability of individual valuations of public and private goods: Choice consistency, response time, and preference refinement

We examined the reliability of a large set of paired comparison value judgments involving public goods, private goods, and sums of money. As respondents progressed through a random sequence of paired choices they were each given, their response time decreased and they became more consistent, apparently fine-tuning their responses, suggesting that respondents tend to begin a hypothetical value exercise with relatively imprecise preferences and that experience in expressing preference helps reduce that imprecision. Reliability was greater for private than for public good choices, and greater for choices between a good and a monetary amount than for choices between two goods. However, the reliability for public good choices was only slightly lower than for the private goods.     

Global public goods and unilateral matching mechanisms

While conventional agreements on international public goods require bilateral or multilateral cooperation, we show that unilateral action through matching mechanisms with a self‐commitment device can possibly generate Pareto‐improving outcomes. Even without commitment, unilateral matching may also benefit both players at corner situations. We further characterize the conditions under which this desirable outcome is achieved, particularly highlighting the role of the income distribution and its interplay with the preferences. Moreover, we propose a variant of unilateral matching that can generate Pareto‐improving outcomes regardless of the preferences and the income distribution, indicating that income inequality may not be an obstacle for improving public good provision through unilateral matching.     

Learning dynamics for mechanism design: An experimental comparison of public goods mechanisms

In a repeated-interaction public goods economy, incomplete information and dynamic behavior may affect the realized outcomes of mechanisms known to be efficient in a complete information one-shot game. An experimental test of five public goods mechanisms indicates that subjects with private information appear to best respond to recent observations. This provides predictions about which mechanisms will generate convergence to their efficient equilibrium allocations. These predictions match the experimental result that globally stable efficient mechanisms realize the highest efficiency in practice. The simplicity of the suggested best response model makes it useful in predicting stability of mechanisms not yet tested.     

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.