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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.

Suggested Citation

  • Sanjit Dhami & Ali al-Nowaihi, 2012. "Philanthropy, multiple equilibria and optimal public policy," Discussion Papers in Economics 12/08, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:12/08
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    References listed on IDEAS

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    More about this item

    Keywords

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

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods

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