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Hybrid lotteries for financing public goods

Author

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  • Sanchez Villalba, Miguel
  • Martinez Gorricho, Silvia

Abstract

We propose a new, voluntary mechanism (the "hybrid lottery") as a means for financing the provision of public goods. We find that, under some conditions, the mechanism can mitigate the free-riding problem and that, for each player, the (weakly) dominant strategy is the one that -in equilibrium- implements the first best. We also find that the mechanism is quite robust to modifications of the basic model, including heterogeneity in incomes and preferences, different utility functions and incomplete information. Finally, the mechanism is "self-financed"(i.e., it never runs out of money, neither on- nor off-equilibrium path) and -because of the use of dominant strategies- it is very easy to solve by players. Thus, the mechanism is simple to implement in the real world by charities and other organisations that rely on voluntary contributions.

Suggested Citation

  • Sanchez Villalba, Miguel & Martinez Gorricho, Silvia, 2017. "Hybrid lotteries for financing public goods," MPRA Paper 80823, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80823
    as

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    References listed on IDEAS

    as
    1. Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, vol. 45(4), pages 783-809, May.
    2. John Morgan & Martin Sefton, 2000. "Funding Public Goods with Lotteries: Experimental Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 785-810.
    3. Miguel Sánchez Villalba & Silvia Martínez-Gorricho, 2014. "Public Goods: Voluntary Contributions and Risk," Working Papers. Serie AD 2014-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    4. Miguel Sánchez Villalba, 2010. "Tax Evasion as a Global Game (TEGG) in the laboratory," Working Papers. Serie AD 2010-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    5. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
    6. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63(4), pages 309-309.
    7. John Morgan, 2000. "Financing Public Goods by Means of Lotteries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 761-784.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Public Goods; Voluntary Contribution Mechanism; Subsidy Schemes; Laboratory Experiments;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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