Can a raise in your wage make you worse off? A public goods perspective
AbstractWe show that a seemingly paradoxical result is possibleâan increase in one's wage can reduce one's welfare. Such outcome can occur in an economy populated by agents who value a private good bought using labor income and a public good produced by voluntary time contributions. A raise in the wage (in general, opportunity cost of time) makes each agent substitute away from contributing to the public good, failing to internalize the negative externality imposed on others. The result is a decrease in public good provision. Under quite general conditions, the implied cumulative negative effect on agents' welfare can more than offset the positive effect of the wage raise from increased private good consumption and lead to an equilibrium in which all agents are worse off. Our result is particularly relevant for developing economy settings as it holds for relatively low initial wage levels. We discuss the applicability of our findings to a number of important problems in development, such as market integration, cooperation in common pool resource conservation and social capital.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 84 (2007)
Issue (Month): 1 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/devec
Other versions of this item:
- Suman Ghosh & Alexander Karaivanov, 2005. "Can a raise in your wage make you worse off? A public goods perspective," Working Papers 05004, Department of Economics, College of Business, Florida Atlantic University, revised Mar 2006.
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Masao Ogaki & Qiang Zhang, 1998.
"Decreasing Relative Risk Aversion and Tests of Risk Sharing,"
98-02, Ohio State University, Department of Economics.
- Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-26, March.
- Masao Ogaki & Qiang Zhang, 2000. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometric Society World Congress 2000 Contributed Papers 1588, Econometric Society.
- Steven N. Durlauf & Marcel Fafchamps, 2004.
CSAE Working Paper Series
2004-14, Centre for the Study of African Economies, University of Oxford.
- Steven N. Durlauf & Marcel Fafchamps, 2004. "Social Capital," NBER Working Papers 10485, National Bureau of Economic Research, Inc.
- Durlauf,S.N. & Fafchamps,M., 2004. "Social capital," Working papers 12, Wisconsin Madison - Social Systems.
- Marcel Fafchamps & Steven N. Durlauf, 2004. "Social Capital," Economics Series Working Papers WPS/2004-14, University of Oxford, Department of Economics.
- Steven Durlauf & Marcel Fafchamps, 2004. "Social Capital," Development and Comp Systems 0409060, EconWPA.
- Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997.
"The Proper Scope of Government: Theory and an Application to Prisons,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(4), pages 1127-61, November.
- Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
- Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
- Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 495-526, July.
- Bellon, Mauricio R., 2001. "Demand and Supply of Crop Infraspecific Diversity on Farms: Towards a Policy Framework for On-Farm Conservation," Economics Working Papers 7666, CIMMYT: International Maize and Wheat Improvement Center.
- Indraneel Dasgupta & Ravi Kanbur, 2005.
"Community and anti-poverty targeting,"
Journal of Economic Inequality,
Springer, vol. 3(3), pages 281-302, December.
- Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
- Besley, Timothy J. & Ghatak, Maitreesh, 2001.
"Government versus Private Ownership of Public Goods,"
CEPR Discussion Papers
2725, C.E.P.R. Discussion Papers.
- Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership Of Public Goods," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1343-1372, November.
- Jeff Dayton-Johnson and Pranab Bardhan., 1996.
"Inequality and Conservation on the Local Commons: A Theoretical Exercise,"
Center for International and Development Economics Research (CIDER) Working Papers
C96-071, University of California at Berkeley.
- Jeff Dayton-Johnson & Pranab Bardhan, 2002. "Inequality And Conservation On The Local Commons: A Theoretical Exercise," Economic Journal, Royal Economic Society, vol. 112(481), pages 577-602, July.
- Dayton-Johnson, Jeff & Bardhan, Pranab, 1996. "Inequality and Conservation on the Local Commons: A Theoretical Exercise," Center for International and Development Economics Research, Working Paper Series qt7f9913w9, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- N. Shanmugaratnam, 1996. "Nationalisation, Privatisation and the dilemmas of common property management in Western Rajasthan," Journal of Development Studies, Taylor & Francis Journals, vol. 33(2), pages 163-187.
- Jodha, N.S., 1992. "Common Property Resources; A Missing Dimension of development Strategies," World Bank - Discussion Papers 168, World Bank.
- Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005.
"Cooperation in collective action,"
The Economics of Transition,
The European Bank for Reconstruction and Development, vol. 13(3), pages 473-498, 07.
- Dreze, Jean & Sen, Amartya, 1999. "India: Economic Development and Social Opportunity," OUP Catalogue, Oxford University Press, number 9780198295280.
- Edmonds, Eric V., 2002. "Government-initiated community resource management and local resource extraction from Nepal's forests," Journal of Development Economics, Elsevier, vol. 68(1), pages 89-115, June.
- Masako Fujiie & Yujiro Hayami & Masao Kikuchi, 2005. "The conditions of collective action for local commons management: the case of irrigation in the Philippines," Agricultural Economics, International Association of Agricultural Economists, vol. 33(2), pages 179-189, 09.
- Reddy, S. R. C. & Chakravarty, S. P., 1999. "Forest Dependence and Income Distribution in a Subsistence Economy: Evidence from India," World Development, Elsevier, vol. 27(7), pages 1141-1149, July.
- Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
- Dasgupta, Indraneel, 2001. "Gender-biased redistribution and intra-household distribution," European Economic Review, Elsevier, vol. 45(9), pages 1711-1722, October.
- North, Douglass C. & Thomas, Robert Paul, 1971. "The Rise and Fall of the Manorial System: A Theoretical Model," The Journal of Economic History, Cambridge University Press, vol. 31(04), pages 777-803, December.
- Shanmugaratnam, N. & Vedeld, T. & Mossige, A. & Bovin, M., 1992. "Resource Management and Pastoral Institution Building in West African Sahel," World Bank - Discussion Papers 175, World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.