Contests and the Private Production of Public Goods |
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Authors: | Martin Kolmar Andreas Wagener |
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Institution: | 1. Institute for Public Finance and Financial Law, University of St. Gallen, Varnbüelstrasse 19, CH-9000 St. Gallen, Switzerland;2. University of Hannover, Department of Economics and Management, Koenigsworther Platz 1, D-30167 Hannover, Germany |
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Abstract: | The private provision of public goods generally suffers from two types of efficiency failures: sorting problems (the wrong individuals contribute) and quantity problems (an inefficient amount is provided). Embedding the provision game into a contest that rewards larger contributions with higher probabilities of winning a prize may remedy such failures. Applications include tenure decisions at universities, electoral competition among politicians, etc. We identify a tradeoff between the value of the prize and the decisiveness of the contest. High‐powered incentives in contests may cause an overprovision of the public good or wasteful participation of unproductive individuals in the contest. |
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Keywords: | D74 H41 H70 K42 |
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