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Public goods with ambiguity in large economies

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  • Kocherlakota, Narayana R.
  • Song, Yangwei

Abstract

We consider a canonical problem in economics: the financing and provision of a public good. Mailath and Postlewaite (1990) show that under natural information and enforcement frictions, the probability of providing the public good falls to zero as the population size goes to infinity even if provision of the public good is efficient. In this paper, we allow agents to have multiple prior beliefs about others' valuations and to make choices that reflect their aversion to that ambiguity. We show that, as long as each agent's set of priors contains some distribution of valuations under which provision is inefficient, it is possible to find a mechanism in large economies that finances provision of the public good.

Suggested Citation

  • Kocherlakota, Narayana R. & Song, Yangwei, 2019. "Public goods with ambiguity in large economies," Journal of Economic Theory, Elsevier, vol. 182(C), pages 218-246.
    • Handle: RePEc:eee:jetheo:v:182:y:2019:i:c:p:218-246
    DOI: 10.1016/j.jet.2019.04.007
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    References listed on IDEAS

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    Cited by:

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    2. Sosung Baik & Sung-Ha Hwang, 2021. "Auction design with ambiguity: Optimality of the first-price and all-pay auctions," Papers 2110.08563, arXiv.org.
    3. Berliant, Marcus & Gouveia, Miguel, 2022. "On the Political Economy of Nonlinear Income Taxation," MPRA Paper 113140, University Library of Munich, Germany.
    4. Song, Yangwei, 2022. "Approximate Bayesian Implementation and Exact Maxmin Implementation: An Equivalence," Rationality and Competition Discussion Paper Series 362, CRC TRR 190 Rationality and Competition.

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    More about this item

    Keywords

    Efficient provision; Public goods; Ambiguity aversion; Large economies;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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