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Voluntary Provision of Public Goods for Bads: A Theory of Environmental Offsets

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  • Matthew J. Kotchen

Abstract

This paper examines voluntary provision of a public good that is motivated, in part, to compensate for other activities that diminish the public good. Markets for environmental offsets, such as those that promote carbon neutrality to minimize the impact of climate change, provide an increasingly salient example. An important result, related to one shown previously, is that mean donations to the public good do not converge to zero as the economy grows large. Other results are new and comparable to those from the standard model of a privately provided public good. The Nash equilibrium is solved explicitly to show how individual direct donations and net contributions depend on wealth and heterogenous preferences. Comparative static analysis demonstrates how the level of the public good and social welfare depend on the technology, individual wealth, and an initial level of the public good. Application of the model in an environmental context establishes a starting point for understanding and making predictions about markets such as those for carbon offsets.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13643.

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Date of creation: Nov 2007
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Publication status: published as Matthew J. Kotchen, 2009. "Voluntary Provision of Public Goods for Bads: A Theory of Environmental Offsets," Economic Journal, Royal Economic Society, vol. 119(537), pages 883-899, 04.
Handle: RePEc:nbr:nberwo:13643

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  1. Matthew Kotchen & Michael Moore, 2008. "Conservation: From Voluntary Restraint to a Voluntary Price Premium," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 40(2), pages 195-215, June.
  2. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(401), pages 464-77, June.
  3. Harbaugh, William T., 1998. "What do donations buy?: A model of philanthropy based on prestige and warm glow," Journal of Public Economics, Elsevier, Elsevier, vol. 67(2), pages 269-284, February.
  4. Cornes, Richard & Sandler, Todd, 1994. "The comparative static properties of the impure public good model," Journal of Public Economics, Elsevier, Elsevier, vol. 54(3), pages 403-421, July.
  5. Cornes, Richard & Sandler, Todd, 1984. "Easy Riders, Joint Production, and Public Goods," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(375), pages 580-98, September.
  6. Matthew J. Kotchen, 2003. "Green Markets and Private Provision of Public Goods," Department of Economics Working Papers, Department of Economics, Williams College 2003-05, Department of Economics, Williams College.
  7. Matthew J. Kotchen, 2003. "Impure Public Goods and the Comparative Statics of Environmentally Friendly Consumption," Department of Economics Working Papers, Department of Economics, Williams College 2003-06, Department of Economics, Williams College.
  8. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, Elsevier, vol. 35(1), pages 57-73, February.
  9. Hollander, Heinz, 1990. "A Social Exchange Approach to Voluntary Cooperation," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1157-67, December.
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Cited by:
  1. Wolfgang Buchholz & Richard Cornes & Dirk T. G. Rübbelke, 2009. "Existence and Warr Neutrality for Matching Equilibria in a Public Good Economy: An Aggregative Game Approach," CESifo Working Paper Series 2884, CESifo Group Munich.
  2. Buchholz, Wolfgang & Cornes, Richard & Rübbelke, Dirk, 2011. "Interior matching equilibria in a public good economy: An aggregative game approach," Journal of Public Economics, Elsevier, Elsevier, vol. 95(7-8), pages 639-645, August.
  3. Tiefenbeck, Verena & Staake, Thorsten & Roth, Kurt & Sachs, Olga, 2013. "For better or for worse? Empirical evidence of moral licensing in a behavioral energy conservation campaign," Energy Policy, Elsevier, Elsevier, vol. 57(C), pages 160-171.
  4. Diederich, Johannees & Goeschl, Timo, 2014. "Motivational Drivers of the Private Provision of Public Goods: Evidence From a Large Framed Field Experiment," Working Papers 0561, University of Heidelberg, Department of Economics.
  5. Huhtala, Anni, 2010. "Income effects and the inconvenience of private provision of public goods for bads: The case of recycling in Finland," Ecological Economics, Elsevier, Elsevier, vol. 69(8), pages 1675-1681, June.
  6. Marc N. Conte & Matthew J. Kotchen, 2010. "Explaining The Price Of Voluntary Carbon Offsets," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 93-111.
  7. Jacobsen, Grant D. & Kotchen, Matthew J. & Vandenbergh, Michael P., 2012. "The behavioral response to voluntary provision of an environmental public good: Evidence from residential electricity demand," European Economic Review, Elsevier, Elsevier, vol. 56(5), pages 946-960.
  8. Massimiliano Mazzanti & Valeria Costantini & Susanna Mancinelli & Massimilano Corradini, 2011. "Environmental and Innovation Performance in a Dynamic Impure Public Good Framework," Working Papers 201117, University of Ferrara, Department of Economics.
  9. Johannes Diederich & Timo Goeschl, 2014. "Willingness to Pay for Voluntary Climate Action and Its Determinants: Field-Experimental Evidence," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 57(3), pages 405-429, March.
  10. Moore, Michael R. & Lewis, Geoffrey McD. & Cepela, Daniel J., 2010. "Markets for renewable energy and pollution emissions: Environmental claims, emission-reduction accounting, and product decoupling," Energy Policy, Elsevier, Elsevier, vol. 38(10), pages 5956-5966, October.
  11. Grischa Perino, 2013. "Private provision of public goods in a second-best world: Cap-and-trade schemes limit green consumerism," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS), School of Economics, University of East Anglia, Norwich, UK. 13-01, School of Economics, University of East Anglia, Norwich, UK..
  12. Owen, Ann L. & Videras, Julio & Wu, Stephen, 2008. "More information isn’t always better: the case of voluntary provision of environmental quality," MPRA Paper 11588, University Library of Munich, Germany.
  13. Diederich, Johannes & Goeschl, Timo, 2011. "Giving in a Large Economy: Price vs. Non-Price Effects in a Field Experiment," Working Papers 0514, University of Heidelberg, Department of Economics.
  14. Tom DEDEURWAERDERE & Paolo MELINDI GHIDI, 2013. "Voluntary Pooled Public Knowledge Goods and Coalition Formation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2013020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  15. Timo Goeschl & Grischa Perino, 2009. "Instrment choice and motivation: Evidence from a climate change experiment," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS), School of Economics, University of East Anglia, Norwich, UK. 09-05, School of Economics, University of East Anglia, Norwich, UK..
  16. Andreas Lange & Andreas Ziegler, 2012. "Offsetting versus Mitigation Activities to Reduce CO2 Emissions: A Theoretical and Empirical Analysis for the U.S. and Germany," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201218, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  17. Jacobsen, Grant D., 2011. "The Al Gore effect: An Inconvenient Truth and voluntary carbon offsets," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 67-78, January.

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