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Efficient Public Good Provision in Networks : Revisiting the Lindahl Solution
The provision of public goods in developing countries is a central challenge. This paper studies a model where each agent?s effort provides heterogeneous benefits to the others, inducing a network of opportunities for favor-trading. We focus on a classical efficient benchmark ? the Lindahl solution ? that can be derived from a bargaining game. Does the optimistic assumption that agents use an efficient mechanism (rather than succumbing to the tragedy of the commons) imply incentives for efficient investment in the technology that is used to produce the public goods? To show that the answer is ...
Does the NEA crowd out private charitable contributions to the arts?
In this paper, I extend a theoretical model of the crowding out hypothesis, whereby government contributions to a public good displace private giving, in order to illustrate how dollar-for-dollar crowding out is possible even when individuals regard their own contributions and government grants as imperfect substitutes. I estimate that private charitable contributions to arts organizations increased by 60 cents to a dollar due to a major funding cut to the National Endowment for the Arts (NEA) during the mid-1990s. These increases, however, also coincided with, on average, a 25 cent increase ...
Prizes and patents: using market signals to provide incentives for innovations
Innovative activities have public good characteristics in the sense that the cost of producing the innovation is high compared to the cost of producing subsequent units. Moreover, knowledge of how to produce subsequent units is widely known once the innovation has occurred and is, therefore, non-rivalrous. The main question of this paper is whether mechanisms can be found which exploit market information to provide appropriate incentives for innovation. The ability of the mechanism designer to exploit such information depends crucially on the ability of the innovator to manipulate market ...
Selecting public goods institutions: who likes to punish and reward?
The authors extend the standard public goods game in a variety of ways, in particular by allowing for endogenous preference over institutions and by studying the relationship between individual types, their preferences, and later behavior within the various institutional environments. They collect individual data on a variety of demographic factors, in addition to measuring levels of risk aversion and ambiguity aversion (over both gains and losses). The authors then elicit preferences in an incentive-compatible manner over voluntary contribution mechanisms with and without reward and ...
Interjurisdictional competition with adverse selection
In this paper we study competition among non-benevolent local governments for mobile firms and evaluate the consequences of imposing alternative regimes of competition. In our model politicians act as regulators that offer incentives in the form of recommended output levels and socially-costly transfers to induce firms, which have private information on their costs, to operate in their community. Politicians fail to estimate correctly the social costs of public funds and competition drives firms' information rents to higher levels than under a cooperative regime. Therefore, from the ...
How Do Voters Respond to Welfare vis-à-vis Public Good Programs? An Empirical Test for Clientelism
This paper examines allocation of benefits under local government programs in West Bengal, India to isolate patterns consistent with political clientelism. Using household survey data, we find that voters respond positively to private welfare benefits but not to local public good programs, while reporting having benefited from both. Consistent with the voting patterns, shocks to electoral competition induced by exogenous redistricting of villages resulted in upper-tier governments manipulating allocations across local governments only for welfare programs. Through the lens of a hierarchical ...
Patents: protecting inventors and the public good
Patent rights are becoming increasingly controversial in areas such as pharmaceuticals and genetics. Should the public good come before the private gain of new product inventors or developers? The May 2010 Newsletter tackles this issue.
Jargon alert : Market failure
Related links: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/econ_focus/2011/q1/jargon_alert_weblinks.cfm