The Important Thing Is not (Always) Winning but Taking Part: Funding Public Goods with Contests

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The Important Thing Is not (Always) Winning but Taking Part: Funding Public Goods with Contests

Author Info

Marco Faravelli ()

Abstract

This paper considers a public good game with heterogeneous endowments and incomplete information affected by extreme free-riding. We overcome this problem through the implementation of a contest in which several prizes may be awarded. We identify a monotone equilibrium, in which the contribution is strictly increasing in the endowment. We prove that it is optimal for the social planner to set the last prize equal to zero, but otherwise total expected contribution is invariant to the prize structure. Finally, we show that private provision via a contest Pareto-dominates public provision and is higher than the total contribution raised through a lottery.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 156.

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Length: 19
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:edn:esedps:156

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This paper has been announced in the following NEP Reports:

NEP-ALL-2007-04-21 (All new papers)
NEP-MIC-2007-04-21 (Microeconomics)
NEP-PBE-2007-04-21 (Public Economics)

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Other versions:
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