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A public good model with lotteries in large groups

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  • Antonio Cabrales
  • Haydée Lugo

Abstract

We analyze the effect of a large group on a public goods model with lotteries. We show that as populations get large, and with preferences in which people only care about their private consumptions and the total supply of the public good, the level of contributions converges to the one given by voluntary contributions. With altruistic preferences of the warm-glow type, the contributions converge to a level strictly higher than those given by voluntary contributions, but in general they do not yield first-best levels. Our results are important to clarify why in general governments do not rely on lotteries for a large part of the revenue creation for public good provision. They are also useful to understand why lottery proceeds are earmarked to worthy causes, where warm glow is likely to be larger. Copyright Springer Science+Business Media New York 2016

Suggested Citation

  • Antonio Cabrales & Haydée Lugo, 2016. "A public good model with lotteries in large groups," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(2), pages 218-233, April.
    • Handle: RePEc:kap:itaxpf:v:23:y:2016:i:2:p:218-233
    DOI: 10.1007/s10797-015-9359-y
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    More about this item

    Keywords

    Lotteries; Public good; Warm glow; Efficiency; D64; H21; H41;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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