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Competitive Charitable Giving and Optimal Public Policy with Multiple Equilibria

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  • Sanjit Dhami

    ()

  • Ali al-Nowaihi

    ()

Abstract

Consider a large number of small individuals contributing to a charity or to a public good. We study the properties of a competitive equilibrium in giving and allow for multiple equilibria. Our proposed condition, aggregate strategic complementarity, is a necessary condition for multiple equilibria. Consider two equilibria with low (L) and high (H) levels of giving. Comparative statics at L could be perverse (subsidies reduce giving) while those at H could be normal (subsidies induce giving), which rules out the use of incentives at L. We demonstrate how public policy, in the form of temporary direct government grants to charity can engineer a move from L to H. We use a welfare analysis to determine the optimal mix of private and public contributions to charity. Our paper contributes to the broader and more fundamental question of using public policy to engineer moves between multiple equilibria.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 11/37.

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Date of creation: Aug 2011
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Handle: RePEc:lec:leecon:11/37

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Related research

Keywords: Multiple equilibria; privately supplied public goods; aggregate strategic substitutes and complements; competitive and non-cooperative equilibria; direct grants; charitable redistribution; voluntary contributions to public goods; optimal mix of public and private giving.;

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  1. Richard Cornes & Roger Hartley, 2003. "Aggregative Public Goods Games," NajEcon Working Paper Reviews, www.najecon.org 666156000000000063, www.najecon.org.
  2. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  3. Daniel Rondeau & John A. List, 2008. "Matching and Challenge Gifts to Charity:Evidence from Laboratory and Natural Field Experiments," NBER Working Papers 13728, National Bureau of Economic Research, Inc.
  4. Thomas Garrett & Russell Rhine, 2010. "Government growth and private contributions to charity," Public Choice, Springer, Springer, vol. 143(1), pages 103-120, April.
  5. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, Econometric Society, vol. 70(2), pages 737-753, March.
  6. Roberto A. Weber, 2006. "Managing Growth to Achieve Efficient Coordination in Large Groups," American Economic Review, American Economic Association, American Economic Association, vol. 96(1), pages 114-126, March.
  7. Dean Karlan & John List, 2006. "Does price matter in charitable giving? Evidence from a large-scale natural field experiment," Natural Field Experiments, The Field Experiments Website 00279, The Field Experiments Website.
  8. Potters, J.J.M. & Sefton, M. & Vesterlund, L., 2007. "Leading-by-example and signaling in voluntary contribution games: An experimental study," Open Access publications from Tilburg University urn:nbn:nl:ui:12-302954, Tilburg University.
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