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Contests and the Private Production of Public Goods

Listed author(s):
  • Martin Kolmar

    (Institute for Public Finance and Financial Law, University of St. Gallen, Varnbüelstrasse 19, CH-9000 St. Gallen, Switzerland; corresponding author)

  • Andreas Wagener


    (University of Hannover, Department of Economics and Management, Koenigsworther Platz 1, D-30167 Hannover, Germany;)

The private provision of public goods generally suffers from two types of efficiency failures: sorting problems (the wrong individuals contribute) and quantity problems (an inefficient amount is provided). Embedding the provision game into a contest that rewards larger contributions with higher probabilities of winning a prize may remedy such failures. Applications include tenure decisions at universities, electoral competition among politicians, etc. We identify a tradeoff between the value of the prize and the decisiveness of the contest. High-powered incentives in contests may cause an overprovision of the public good or wasteful participation of unproductive individuals in the contest.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 79 (2012)
Issue (Month): 1 (July)
Pages: 161-179

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Handle: RePEc:sej:ancoec:v:79:1:y:2012:p:161-179
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