Charitable Giving and Optimal Public Policy in a Competitive Equilibrium with Multiple Equilibria
AbstractIn a competitive-equilibrium analysis of giving to charity, we show that strategic complementarity between individual giving and aggregate giving can lead to multiple equilibria. This provides a possible explanation for observed heterogeneity in giving. It is possible, but not necessary, that at a low equilibrium in giving (LE), an increase in subsidy reduces giving (perverse comparative statics) while at a high equilibrium (HE) the comparative statics are normal (subsidies promote giving). The perverse comparative statics at LE preclude using subsidies to move the economy to HE. We show how temporary direct government grants can engineer a permanent move from LE to HE. Once HE is established, the optimal mix of private and public giving is determined using a welfare analysis. We show that the Nash non-cooperative outcome is virtually identical to the competitive-equilibrium, even for relatively small numbers of givers. The competitive-equilibrium approach is more tractable and plausible, and more general because it does not rely on a symmetric equilibrium. We also show how our results are applicable to redistributive and public good contexts.
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Bibliographic InfoPaper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 10/08.
Date of creation: Mar 2010
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Find related papers by JEL classification:
- D6 - Microeconomics - - Welfare Economics
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H4 - Public Economics - - Publicly Provided Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
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