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Threshold uncertainty in the private-information subscription game

  • Barbieri, Stefano
  • Malueg, David A.

We introduce threshold uncertainty, à la Nitzan and Romano (1990), into a private-values model of voluntary provision of a discrete public good. Players are allowed to make any level of contribution toward funding the good, which is provided if the cost threshold is reached. Otherwise, contributions are refunded. Conditions ensuring existence and uniqueness of a Bayesian equilibrium are established. Further restricting the threshold uncertainty to a uniform distribution, we show the equilibrium strategies are very simple, even allowing for any number of players with asymmetric distributions of values. Comparative statics with respect to changes in players' distributions are derived, allowing changes in both the intensity and the dispersion of values. For example, increased uncertainty, in the sense of mean-preserving spreads of players' distributions of values, increases equilibrium contributions. Finally, we show the equilibrium is interim incentive inefficient. The sharpness of our results greatly contrasts with the more qualified insights of earlier private-values models with known cost threshold, which relied on there being two symmetric players and generally exhibited multiple equilibria.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 94 (2010)
Issue (Month): 11-12 (December)
Pages: 848-861

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Handle: RePEc:eee:pubeco:v:94:y:2010:i:11-12:p:848-861
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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