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Should I Stay or Should I Go? Public Provision of a Private Good with an Exit Option

Author

Listed:
  • Neil Buckley
  • Katherine Cuff
  • Jeremiah Hurley
  • Stuart Mestelman
  • Stephanie Thomas
  • David Cameron

Abstract

In this paper, we adapt the standard political economy models of mixed financing of private goods to allow for an exit option in which individuals can choose to neither consume nor finance the publicly provided private good. Using a controlled laboratory experiment, we empirically investigate the predictions of this model when all individuals are allow to exit (universal-exit) and when only individuals with an income at or above a threshold income level are allowed to exit (conditional-exit). Even though the incentives for high-income individuals to exit are identical under both exit schemes, high-income individuals are less likely to exit when the exit option is universal. Sensitivity treatments suggests that a number of factors may be at play in explaining this result, including learning effects and a type of endowment effect, but that other-regarding preferences do not appear to be an important factor.

Suggested Citation

  • Neil Buckley & Katherine Cuff & Jeremiah Hurley & Stuart Mestelman & Stephanie Thomas & David Cameron, 2014. "Should I Stay or Should I Go? Public Provision of a Private Good with an Exit Option," Department of Economics Working Papers 2014-01, McMaster University.
    • Handle: RePEc:mcm:deptwp:2014-01
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    File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2014-01.pdf
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    References listed on IDEAS

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    Cited by:

    1. Buckley, Neil & Cuff, Katherine & Hurley, Jeremiah & Mestelman, Stuart & Thomas, Stephanie & Cameron, David, 2015. "Support for public provision of a private good with top-up and opt-out: A controlled laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 177-196.

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    Keywords

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    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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