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Philanthropy, multiple equilibria and optimal public policy

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  • Sanjit Dhami

    ()

  • Ali al-Nowaihi

    ()

Abstract

Let a large-number of small-individuals contribute to charity. We show that ‘strong aggregate complementarity’ is necessary for multiple equilibria in a competitive equilibrium. Consider two equilibria with low (L) and high (H) levels of giving. Suppose that society is stuck at L and wishes to move to H using welfare-maximizing-public-policy. Subsidies are ineffective when comparative statics at L are ‘perverse’ (subsidies reduce giving). Public policy in the form of temporary direct government grants to charity can engineer a move from L to H. We contribute to the broader question of using public policy to engineer moves between multiple equilibria.

Suggested Citation

  • Sanjit Dhami & Ali al-Nowaihi, 2012. "Philanthropy, multiple equilibria and optimal public policy," Discussion Papers in Economics 12/08, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:12/08
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    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp12-08.pdf
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    References listed on IDEAS

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    1. Jan Potters & Martin Sefton & Lise Vesterlund, 2007. "Leading-by-example and signaling in voluntary contribution games: an experimental study," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(1), pages 169-182, October.
    2. Daniel Rondeau & John List, 2008. "Matching and challenge gifts to charity: evidence from laboratory and natural field experiments," Experimental Economics, Springer;Economic Science Association, vol. 11(3), pages 253-267, September.
    3. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    5. Roberto A. Weber, 2006. "Managing Growth to Achieve Efficient Coordination in Large Groups," American Economic Review, American Economic Association, vol. 96(1), pages 114-126, March.
    6. Dean Karlan & John A. List, 2007. "Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment," American Economic Review, American Economic Association, vol. 97(5), pages 1774-1793, December.
    7. Richard Cornes & Roger Hartley, 2007. "Aggregative Public Good Games," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 201-219, April.
    8. Thomas Garrett & Russell Rhine, 2010. "Government growth and private contributions to charity," Public Choice, Springer, vol. 143(1), pages 103-120, April.
    9. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
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    More about this item

    Keywords

    Charitable giving; multiple equilibria; strong aggregate substitutes; optimal mix of public and private giving; subsidies and direct grants; redistribution; privately supplied public goods.;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods

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