On the interrelation between the consumption of impure public goods and the provision of direct donations: Theory and empirical evidence

This paper investigates the extent to which the possibility of direct donations to a public good may substitute an individual’s consumption of impure public goods. Theoretically, we derive conditions under which donations may serve as substitutes or complements for the consumption of private and impure public goods. We then empirically test our predictions in the context of climate change mitigation using data from online-representative surveys among citizens in Germany and the U.S. Our empirical results indicate a rather complementary relationship between offsetting and other pro-environmental activities in both countries, although individuals substitute certain clean consumption alternatives by offsetting if they lay a sufficiently large weight on environmental preference or if offsetting is perceived to be relatively effective in providing the public good climate protection.