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Public Goods: Voluntary Contributions and Risk

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  • Miguel Sánchez Villalba

    ()
    (Dpto. Fundamentos del Análisis Económico)

  • Silvia Martínez-Gorricho

    ()
    (Dpto. Análisis Económico Aplicado)

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    Abstract

    We analyze two incentive mechanisms as a way of financing public goods. Our mechanism can be interpreted as a variation of a parimutuel lottery in which the total rebate (prize) is made endogenous by setting it equal to a non-increasing function of total bets. The mechanism changes the nature of the standard VCM from a Prisoner’s Dilemma to a Stag-Hunt game. We tested —and found support for— the theoretical predictions of the model by means of a computer-based experiment. The theoretical model and the supporting experimental evidence both suggest the mechanism is an efficient and equitable means to finance public goods through voluntary contributions. In policy terms, and beyond the efficiency and equity considerations, the mechanism would be easy to implement and run given its simplicity and self-sufficiency.

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2014-02.pdf
    File Function: Fisrt version / Primera version, 2014
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    Bibliographic Info

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2014-02.

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    Length: 55 pages
    Date of creation: Mar 2014
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    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2014-02

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    Related research

    Keywords: Public Goods; Voluntary Contribution Mechanism; Subsidy Schemes; Laboratory Experiments;

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    1. Morgan, John & Sefton, Martin, 2000. "Funding Public Goods with Lotteries: Experimental Evidence," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 785-810, October.
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