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A Case for Bundling Public Goods Contributions?

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Author Info

  • Suman Ghosh

    ()
    (Department of Economics, College of Business, Florida Atlantic University)

  • Alexander Karaivanov

    ()
    (Department of Economics, Simon Fraser University)

  • Mandar Oak

    ()
    (Department of Economics, Williams College)

Abstract

We 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 Info

Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 05005.

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Length: 24 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:fal:wpaper:05005

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Keywords: Private provision; Public goods; Bundling;

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References

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  1. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  2. Jeff Dayton-Johnson and Pranab Bardhan., 1996. "Inequality and Conservation on the Local Commons: A Theoretical Exercise," Center for International and Development Economics Research (CIDER) Working Papers C96-071, University of California at Berkeley.
  3. Steven N. Durlauf & Marcel Fafchamps, 2004. "Social Capital," NBER Working Papers 10485, National Bureau of Economic Research, Inc.
    • Durlauf, Steven N. & Fafchamps, Marcel, 2005. "Social Capital," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 26, pages 1639-1699 Elsevier.
  4. Peter Norman, 2004. "An Efficiency Rational for Bundling of Public Goods," Theory workshop papers 658612000000000084, UCLA Department of Economics.
  5. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
  6. Simon Clark & Ravi Kanbur, 2004. "Stable Partnerships, Matching, and Local Public Goods," ESE Discussion Papers 82, Edinburgh School of Economics, University of Edinburgh.
  7. Richard Cornes & Juni-ichi Itaya, 2004. "Models With Two Or More Public Goods," Department of Economics - Working Papers Series 896, The University of Melbourne.
  8. Gradstein, Mark, 1992. "Time Dynamics and Incomplete Information in the Private Provision of Public Goods," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 581-97, June.
  9. Dreze, Jean & Sen, Amartya, 1999. "India: Economic Development and Social Opportunity," OUP Catalogue, Oxford University Press, number 9780198295280.
  10. Bilodeau, Marc, 1992. "Voluntary contributions to united charities," Journal of Public Economics, Elsevier, vol. 48(1), pages 119-133, June.
  11. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  12. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, vol. 35(1), pages 57-73, February.
  13. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
  14. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  15. Varian, Hal R., 1994. "Sequential contributions to public goods," Journal of Public Economics, Elsevier, vol. 53(2), pages 165-186, February.
  16. Bilodeau, Marc & Slivinski, Al, 1997. "Rival charities," Journal of Public Economics, Elsevier, vol. 66(3), pages 449-467, December.
  17. Peter Norman & Hanming Fang, 2004. "An Efficiency Rationale for the Bundling of Public Goods," Econometric Society 2004 North American Summer Meetings 458, Econometric Society.
  18. Cornes, Richard, 1993. "Dyke Maintenance and Other Stories: Some Neglected Types of Public Goods," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 259-71, February.
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Cited by:
  1. Luca Corazzini & Christopher Cotton & Paola Valbonesi, 2013. "Too many charities? Insight from an experiment with multiple public goods and contribution thresholds," Working Papers 2013-13, University of Miami, Department of Economics.

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