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The provision point mechanism with reward money

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  • Robertas Zubrickas

Abstract

We modify the provision point mechanism by introducing reward money, which is distributed among the contributors in proportion to their contributions only when the provision point is not reached. In equilibrium, the provision point is always reached as competition for reward money and preference for the public good induce sufficient contributions. In environments without aggregate uncertainty, the mechanism not only ensures allocative efficiency but also distributional. At a specific level of reward money, there is a unique equilibrium, where all consumers contribute the same proportion of their private valuations. The advantages of the mechanism are also demonstrated for collective action problems.

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Bibliographic Info

Paper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 114.

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Date of creation: Feb 2013
Date of revision: Oct 2013
Handle: RePEc:zur:econwp:114

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Keywords: Public goods; private provision; provision point mechanism; aggregative game; distributional efficiency; collective action problem;

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