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Assurance Payments for Multi-Unit Public Goods Provision: Experiments Motivated by Ecosystem Service Markets

Listed author(s):
  • Li, Zhi
  • Liu, Pengfei
  • Swallow, Stephen K.

In provision point mechanism, the cost threshold for provision introduces incentives for individuals to contribute toward the public good and, in general, the Pareto efficient outcome is a subset of equilibrium outcomes. However, the threshold cannot eliminate the pure free-rider equilibrium unless refinements are used. In this paper, we examine a set of assurance payment schemes for multi-unit public good provision using individualized price auction (IPA). We find assurance payment significantly eliminates non-provision equilibria, and reduces the multiplicity of provision equilibria suffered by most discrete public good provision games, especially in a multi-unit setup. The assurance payments could be useful in establishing markets for a previously non-marketable good, and thus improve the efficiency regarding the provision of various types of public good currently funded only by government or through traditional non-profit donations.

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File URL: http://purl.umn.edu/170675
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Paper provided by Agricultural and Applied Economics Association in its series 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota with number 170675.

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Date of creation: 2014
Handle: RePEc:ags:aaea14:170675
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  1. Bagnoli, Mark & Ben-David, Shaul & McKee, Michael, 1992. "Voluntary provision of public goods : The multiple unit case," Journal of Public Economics, Elsevier, vol. 47(1), pages 85-106, February.
  2. David Masclet & Charles Noussair & Steven Tucker & Marie-Claire Villeval, 2003. "Monetary and Nonmonetary Punishment in the Voluntary Contributions Mechanism," American Economic Review, American Economic Association, vol. 93(1), pages 366-380, March.
  3. Tabarrok, Alexander, 1998. "The Private Provision of Public Goods via Dominant Assurance Contracts," Public Choice, Springer, vol. 96(3-4), pages 345-362, September.
  4. Bagnoli, Mark & McKee, Michael, 1991. "Voluntary Contribution Games: Efficient Private Provision of Public Goods," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 351-366, April.
  5. Swallow, Stephen K., 2013. "Demand-side Value for Ecosystem Services and Implications for Innovative Markets: Experimental Perspectives on the Possibility of Private Markets for Public Goods," Agricultural and Resource Economics Review, Cambridge University Press, vol. 42(01), pages 33-56, April.
  6. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
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