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

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  • Li, Zhi
  • Liu, Pengfei
  • Swallow, Stephen K.

Abstract

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.

Suggested Citation

  • Li, Zhi & Liu, Pengfei & Swallow, Stephen K., 2014. "Assurance Payments for Multi-Unit Public Goods Provision: Experiments Motivated by Ecosystem Service Markets," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170675, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea14:170675
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    References listed on IDEAS

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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, pages 85-106.
    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, pages 366-380.
    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, pages 33-56.
    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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    Keywords

    Multi-Unit Public Goods; Lindahl Pricing; Assurance Contract; Environmental Economics and Policy; Public Economics;

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