Provision of Public Goods with the Presence of Inter-Class Conflicts

In the countries that experience the problem of inter-class conflict, the self-interested elite tend to pursue allocation policies that maximize their own welfare. In the absence of the binding revolutionary constraint, under some conditions, the amount of public goods provided is too low, relative to the optimal level of public good from the perspective of general welfare. With the revolutionary constraint, there exists a set of parameter values whereby the elite provide strictly positive amount of public goods. With unconditional foreign aid, there is no guarantee that the elite will use these additional resources to finance public good provision. For conditional foreign aid, the conditionality requirements depend on the degree of transparency of the recipient country.