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The Important Thing Is Not (Always) Winning but Taking Part: Funding Public Goods with Contests

  • MARCO FARAVELLI

This paper considers a public good game with incomplete information a?ected by extreme free-riding. We overcome this problem through the implementation of a contest in which several prizes can be awarded. For any possible distribution of wealth we identify the necessary and su?cient conditions for the equilibrium allocations to be interior for all players. At interior solutions, it is optimal for the social planner to set the last prize equal to zero, but otherwise the total expected welfare is independent of the distribution of the total prize sum among the prizes. We prove that private provision via a contest Pareto-dominates both public provision and private provision via a lottery.

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 13 (2011)
Issue (Month): 1 (02)
Pages: 1-22

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Handle: RePEc:bla:jpbect:v:13:y:2011:i:1:p:1-22
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  1. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  2. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
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  4. Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications 99-75, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  5. Luca Corazzini & Marco Faravelli & Luca Stanca, 2007. "A Prize to Give for: An Experiment on Public Good Funding Mechanisms," CRIEFF Discussion Papers 0714, Centre for Research into Industry, Enterprise, Finance and the Firm.
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  15. John Morgan, 2000. "Financing Public Goods by Means of Lotteries," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 761-784.
  16. Arye Hillman & Dov Samet, 1987. "Dissipation of contestable rents by small numbers of contenders," Public Choice, Springer, vol. 54(1), pages 63-82, January.
  17. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, vol. 35(1), pages 57-73, February.
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