A Case for Bundling Public Goods Contributions?
AbstractWe extend the model of voluntary contributions to multiple public goods by allowing for bundling of the public goods. Specifically, we study the case where agents contribute into a common pool which is then allocated towards the financing of two pure public goods. We explore the welfare implications of allowing for such bundling vis-a-vis a separate contributions scheme. We show that when agents have homogeneous preferences, they cannot be made better off with a bundling scheme. On the contrary, in the generic case when agents are heterogenous in their incomes and preferences, bundling may increase joint welfare compared to a separate contribution scheme, in particular for higher income inequality among the agents. It is interesting to note that the welfare improvement occurs despite a decrease in total contributions. Our findings have implications for the design of charitable institutions and international aid agencies.
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Bibliographic InfoPaper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 05005.
Length: 24 pages
Date of creation: Jun 2005
Date of revision:
Private provision; Public goods; Bundling;
Other versions of this item:
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-14 (All new papers)
- NEP-MIC-2007-01-14 (Microeconomics)
- NEP-PBE-2007-01-14 (Public Economics)
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