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All or nothing: State capacity and optimal public goods provision

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  • Bierbrauer, Felix
  • Winkelmann, Justus

Abstract

We study public goods provision subject to ex post incentive and participation constraints. We also impose a requirement of anonymity. Different public goods can be bundled if sufficient resources are available. The analysis focuses on the all-or-nothing-mechanism: Expand provision as much as is resource feasible if no one vetoes - otherwise stick to the status quo. We show that the probability of the all-outcome converges to one as the capacity becomes unbounded. For a given finite capacity, we provide conditions under which the all-or-nothing-mechanism is ex ante welfare-maximizing - even though, ex post, it involves an overprovision of public goods.

Suggested Citation

  • Bierbrauer, Felix & Winkelmann, Justus, 2020. "All or nothing: State capacity and optimal public goods provision," Journal of Economic Theory, Elsevier, vol. 185(C).
    • Handle: RePEc:eee:jetheo:v:185:y:2020:i:c:s002205311930105x
    DOI: 10.1016/j.jet.2019.104955
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    Cited by:

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    3. Thiago Christiano Silva & Solange Maria Guerra & Marcus Vinicius B. Santos, 2022. "The role of externalities in fiscal efficiency," Empirical Economics, Springer, vol. 62(6), pages 2827-2864, June.

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    More about this item

    Keywords

    Public goods; Bundling; State capacity; Mechanism design;
    All these keywords.

    JEL classification:

    • D79 - Microeconomics - - Analysis of Collective Decision-Making - - - Other
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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