Can a raise in your wage make you worse off? A public goods perspective
We show that a seemingly paradoxical result is possible—an increase in one's wage can reduce one's welfare. Such outcome can occur in an economy populated by agents who value a private good bought using labor income and a public good produced by voluntary time contributions. A raise in the wage (in general, opportunity cost of time) makes each agent substitute away from contributing to the public good, failing to internalize the negative externality imposed on others. The result is a decrease in public good provision. Under quite general conditions, the implied cumulative negative effect on agents' welfare can more than offset the positive effect of the wage raise from increased private good consumption and lead to an equilibrium in which all agents are worse off. Our result is particularly relevant for developing economy settings as it holds for relatively low initial wage levels. We discuss the applicability of our findings to a number of important problems in development, such as market integration, cooperation in common pool resource conservation and social capital.
|Date of creation:||Jan 2005|
|Date of revision:||Mar 2006|
|Publication status:||Forthcoming in Journal of Development Economics|
|Contact details of provider:|| Postal: 777 Glades Road, Boca Raton, FL 33431|
Web page: http://business.fau.edu/economics
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- N. Shanmugaratnam, 1996. "Nationalisation, Privatisation and the dilemmas of common property management in Western Rajasthan," Journal of Development Studies, Taylor & Francis Journals, vol. 33(2), pages 163-187.
- Oliver Hart & Andrei Shleifer & Robert Vishny, 1996.
"The Proper Scope of Government: Theory and an Application to Prisons,"
Harvard Institute of Economic Research Working Papers
1778, Harvard - Institute of Economic Research.
- Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1127-1161.
- Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
- Indraneel Dasgupta & Ravi Kanbur, 2005.
"Community and anti-poverty targeting,"
The Journal of Economic Inequality,
Springer;Society for the Study of Economic Inequality, vol. 3(3), pages 281-302, December.
- Steven Durlauf & Marcel Fafchamps, 2004.
Development and Comp Systems
- Durlauf,S.N. & Fafchamps,M., 2004. "Social capital," Working papers 12, Wisconsin Madison - Social Systems.
- Steven N. Durlauf & Marcel Fafchamps, 2004. "Social Capital," NBER Working Papers 10485, National Bureau of Economic Research, Inc.
- Steven N. Durlauf & Marcel Fafchamps, 2004. "Social Capital," CSAE Working Paper Series 2004-14, Centre for the Study of African Economies, University of Oxford.
- Marcel Fafchamps & Steven N. Durlauf, 2004. "Social Capital," Economics Series Working Papers WPS/2004-14, University of Oxford, Department of Economics.
- Shanmugaratnam, N. & Vedeld, T. & Mossige, A. & Bovin, M., 1992. "Resource Management and Pastoral Institution Building in West African Sahel," World Bank - Discussion Papers 175, World Bank.
- Ogaki, Masao & Zhang, Qiang, 2001.
"Decreasing Relative Risk Aversion and Tests of Risk Sharing,"
Econometric Society, vol. 69(2), pages 515-26, March.
- Masao Ogaki & Qiang Zhang, 1998. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Working Papers 98-02, Ohio State University, Department of Economics.
- Masao Ogaki & Qiang Zhang, 2000. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometric Society World Congress 2000 Contributed Papers 1588, Econometric Society.
- Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005.
"Cooperation in collective action,"
The Economics of Transition,
The European Bank for Reconstruction and Development, vol. 13(3), pages 473-498, 07.
- Dasgupta, Indraneel, 2001. "Gender-biased redistribution and intra-household distribution," European Economic Review, Elsevier, vol. 45(9), pages 1711-1722, October.
- Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
- Reddy, S. R. C. & Chakravarty, S. P., 1999. "Forest Dependence and Income Distribution in a Subsistence Economy: Evidence from India," World Development, Elsevier, vol. 27(7), pages 1141-1149, July.
- Bellon, Mauricio R., 2001. "Demand and Supply of Crop Infraspecific Diversity on Farms: Towards a Policy Framework for On-Farm Conservation," Economics Working Papers 7666, CIMMYT: International Maize and Wheat Improvement Center.
- Masako Fujiie & Yujiro Hayami & Masao Kikuchi, 2005. "The conditions of collective action for local commons management: the case of irrigation in the Philippines," Agricultural Economics, International Association of Agricultural Economists, vol. 33(2), pages 179-189, 09.
- North, Douglass C. & Thomas, Robert Paul, 1971. "The Rise and Fall of the Manorial System: A Theoretical Model," The Journal of Economic History, Cambridge University Press, vol. 31(04), pages 777-803, December.
- Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 495-526.
- Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
- Jeff Dayton-Johnson and Pranab Bardhan., 1996.
"Inequality and Conservation on the Local Commons: A Theoretical Exercise,"
Center for International and Development Economics Research (CIDER) Working Papers
C96-071, University of California at Berkeley.
- Jeff Dayton-Johnson & Pranab Bardhan, 2002. "Inequality And Conservation On The Local Commons: A Theoretical Exercise," Economic Journal, Royal Economic Society, vol. 112(481), pages 577-602, July.
- Dayton-Johnson, Jeff & Bardhan, Pranab, 1996. "Inequality and Conservation on the Local Commons: A Theoretical Exercise," Center for International and Development Economics Research, Working Paper Series qt7f9913w9, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Timothy Besley & Maitreesh Ghatak, 2001.
"Government Versus Private Ownership of Public Goods,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 116(4), pages 1343-1372.
- Besley, Timothy J. & Ghatak, Maitreesh, 2001. "Government versus Private Ownership of Public Goods," CEPR Discussion Papers 2725, C.E.P.R. Discussion Papers.
- Dreze, Jean & Sen, Amartya, 1999. "India: Economic Development and Social Opportunity," OUP Catalogue, Oxford University Press, number 9780198295280, December.
- Edmonds, Eric V., 2002. "Government-initiated community resource management and local resource extraction from Nepal's forests," Journal of Development Economics, Elsevier, vol. 68(1), pages 89-115, June.
- Jodha, N.S., 1992. "Common Property Resources; A Missing Dimension of development Strategies," World Bank - Discussion Papers 168, World Bank.
When requesting a correction, please mention this item's handle: RePEc:fal:wpaper:05004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vadym Volosovych)
If references are entirely missing, you can add them using this form.