Competitive Charitable Giving and Optimal Public Policy with Multiple Equilibria
AbstractConsider 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 InfoPaper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 11/37.
Date of creation: Aug 2011
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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-2012-02-01 (All new papers)
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