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Getting the Ball Rolling: Voluntary Contributions to a Long-Term Public Project

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  • Yildirim, Huseyin
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    Abstract

    I consider an incomplete information model of voluntary contributions to a long term public project. While agents can observe the progress of the project and their own costs of contribution, they have incomplete information about the contribution costs of others. I show that the equilibrium pattern of contributions is influenced by the interplay of two opposing incentives: First, agents prefer to free ride on others for contributions. However, second, agents also wish to encourage each other to contribute by increasing their own contributions. Main findings of the paper include: (1) Agents make concessions toward the completion of the project by increasing their contributions as the project moves forward. (2) As additional agents join the group, existing agents increase their contributions in some states and reduce them in others. In particular, agents increase their contributions in the initial stages of the project to increase its value to others and secure their future contributions as a result. (3) Despite this nonmonotonicity, agents do strictly benefit from the presence of additional agents. (4) The project progresses too slowly from the social standpoint.

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    Bibliographic Info

    Paper provided by Duke University, Department of Economics in its series Working Papers with number 02-04.

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    Date of creation: 2002
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    Handle: RePEc:duk:dukeec:02-04

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