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Philanthropy, multiple equilibria and optimal public policy

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  • Sanjit Dhami

    ()

  • Ali al-Nowaihi

    ()

Abstract

Let a large-number of small-individuals contribute to charity. We show that ‘strong aggregate complementarity’ is necessary for multiple equilibria in a competitive equilibrium. Consider two equilibria with low (L) and high (H) levels of giving. Suppose that society is stuck at L and wishes to move to H using welfare-maximizing-public-policy. Subsidies are ineffective when comparative statics at L are ‘perverse’ (subsidies reduce giving). Public policy in the form of temporary direct government grants to charity can engineer a move from L to H. We contribute to the broader 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 12/08.

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Date of creation: Apr 2012
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Handle: RePEc:lec:leecon:12/08

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Related research

Keywords: Charitable giving; multiple equilibria; strong aggregate substitutes; optimal mix of public and private giving; subsidies and direct grants; redistribution; privately supplied public goods.;

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References

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  1. John List & David Reiley, 2008. "Field experiments," Artefactual Field Experiments 00091, The Field Experiments Website.
  2. Dean Karlan & John A. List, 2006. "Does Price Matter in Charitable Giving? Evidence From a Large-Scale Natural Field Experiment," NBER Working Papers 12338, National Bureau of Economic Research, Inc.
  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. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  5. Richard Cornes & Roger Hartley, 2007. "Aggregative Public Good Games," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 201-219, 04.
  6. 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.
  7. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
  8. Roberto A. Weber, 2006. "Managing Growth to Achieve Efficient Coordination in Large Groups," American Economic Review, American Economic Association, vol. 96(1), pages 114-126, March.
  9. Thomas Garrett & Russell Rhine, 2010. "Government growth and private contributions to charity," Public Choice, Springer, vol. 143(1), pages 103-120, April.
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