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Can Positional Concerns Enhance the Private provision of Public Goods?

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  • Douadia Bougherara
  • Sandrine Costa
  • Gilles Grolleau
  • Lisette Ibanez

Abstract

The social welfare effect of positional concerns over public goods is composed of two parts, a positional outcome and an outcome in terms of public goods provision. When agents have homogenous positional preferences over the public good, they overinvest in the positional public good, resulting in a zero-sum positional race with a higher provision of the public good. When agents differ in their positional preferences, the overall impact on social welfare is positive when endowments are homogenous and uncertain when endowments are heterogeneous. Given that the social loss from position-seeking is lower than the social gain from rank seeking, there is an increase of social welfare. If agents have different initial endowments, positional preferences might still be welfare enhancing as long as the positional loss does not exceed the gain in terms of public good provision.

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File URL: http://www.lameta.univ-montp1.fr/Documents/DR2010-04.pdf
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Paper provided by LAMETA, Universtiy of Montpellier in its series Working Papers with number 10-04.

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Length: 14 pages
Date of creation: Apr 2010
Date of revision: Apr 2010
Handle: RePEc:lam:wpaper:10-04

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  1. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  2. Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2001. "How Much Do We Care About Absolute Versus Relative Income and Consumption?," Working Papers in Economics 63, University of Gothenburg, Department of Economics.
  4. Sara J. Solnick & David Hemenway, 2005. "Are Positional Concerns Stronger in Some Domains than in Others?," American Economic Review, American Economic Association, vol. 95(2), pages 147-151, May.
  5. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
  6. Frank, Robert H., 2008. "Should public policy respond to positional externalities?," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1777-1786, August.
  7. Harbaugh, William T., 1998. "What do donations buy?: A model of philanthropy based on prestige and warm glow," Journal of Public Economics, Elsevier, vol. 67(2), pages 269-284, February.
  8. Ng, Yew-Kwang & Wang, Jianguo, 1993. "Relative income, aspiration, environmental quality, individual and political myopia : Why may the rat-race for material growth be welfare-reducing?," Mathematical Social Sciences, Elsevier, vol. 26(1), pages 3-23, July.
  9. Long, Ngo Van & Wang, Shengzu, 2009. "Resource-grabbing by status-conscious agents," Journal of Development Economics, Elsevier, vol. 89(1), pages 39-50, May.
  10. Robert H. Frank, 2005. "Positional Externalities Cause Large and Preventable Welfare Losses," American Economic Review, American Economic Association, vol. 95(2), pages 137-141, May.
  11. Hollander, Heinz, 1990. "A Social Exchange Approach to Voluntary Cooperation," American Economic Review, American Economic Association, vol. 80(5), pages 1157-67, December.
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Cited by:
  1. Sophie Clot & Gilles Grolleau & Lisette Ibanez, 2014. "An experimental analysis from a taking game in Madagascar," Working Papers 14-02, LAMETA, Universtiy of Montpellier, revised Jan 2014.

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