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: |
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.:
- Steven N. Durlauf & Marcel Fafchamps, 2004.
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.
- Durlauf,S.N. & Fafchamps,M., 2004. "Social capital," Working papers 12, Wisconsin Madison - Social Systems.
- Steven Durlauf & Marcel Fafchamps, 2004. "Social Capital," Development and Comp Systems 0409060, EconWPA.
- Masao Ogaki & Qiang Zhang, 2000.
"Decreasing Relative Risk Aversion and Tests of Risk Sharing,"
Econometric Society World Congress 2000 Contributed Papers
1588, Econometric Society.
- Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, 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.
- 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.
- Imran Rasul & Iwan Barankay & Orana Bandiera, 2005.
"Cooperation in collective action,"
Natural Field Experiments
00211, The Field Experiments Website.
- Indraneel Dasgupta & Ravi Kanbur, 2005.
"Community and anti-poverty targeting,"
Journal of Economic Inequality,
Springer, vol. 3(3), pages 281-302, December.
- 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.
- Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1127-61, November.
- 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.
- 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.
- 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,
MIT Press, vol. 116(4), pages 1343-1372, November.
- Besley, Timothy J. & Ghatak, Maitreesh, 2001. "Government versus Private Ownership of Public Goods," CEPR Discussion Papers 2725, C.E.P.R. Discussion Papers.
- Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
- 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.
- Dreze, Jean & Sen, Amartya, 1999. "India: Economic Development and Social Opportunity," OUP Catalogue, Oxford University Press, number 9780198295280, March.
- 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.
- 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.
- Jodha, N.S., 1992. "Common Property Resources; A Missing Dimension of development Strategies," World Bank - Discussion Papers 168, World Bank.
- 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.
- Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 495-526, July.
- 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.
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)The email address of this maintainer does not seem to be valid anymore. Please ask Vadym Volosovych to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.