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Public versus Private Provision of Public Goods

  • Sita Nataraj Slavov


    (Department of Economics, Occidental College)

It is well known that pure public goods are underprovided in static games with private, voluntary contributions. Public provision is usually modeled using a median voter framework, in which the public good is funded by a proportional income tax. This paper compares the private and public provision of public goods in dynamic settings. With private provision, it is possible to sustain cooperation and provide the public good efficiently. With public provision, dynamic majority-rule solutions exist even when taxes are not restricted to be proportional to income; thus, income redistribution can be chosen jointly with the level of the public good. At low discount factors, private provision tends to result in lower levels of the public good relative to public provision. As patience increases, however, public provision results in lower levels of the public good than private provision. This occurs because higher levels of income redistribution are sustainable under public provision. Such redistribution becomes increasingly feasible at higher discount factors, resulting in income subsidies for particular groups instead of higher levels of the public good. In contrast, under private provision, all groups are forced to settle for increases in the level of the public good. In terms of financing the public good, private provision tends to result in benefit taxation, with little variation in individual contribution rates. Public provision allows a wider range of tax rates, although there is a tendency towards benefit taxation when preferences vary and progressive taxation when incomes vary.

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Paper provided by Occidental College, Department of Economics in its series Occidental Economics Working Papers with number 2.

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Length: 24 pages
Date of creation: Mar 2006
Date of revision: Mar 2006
Handle: RePEc:occ:wpaper:2
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  1. Marx, Leslie M & Matthews, Steven A, 2000. "Dynamic Voluntary Contribution to a Public Project," Review of Economic Studies, Wiley Blackwell, vol. 67(2), pages 327-58, April.
  2. Borcherding, Thomas E & Deacon, Robert T, 1972. "The Demand for the Services of Non-Federal Governments," American Economic Review, American Economic Association, vol. 62(5), pages 891-901, December.
  3. Alessandro Lizzeri & Nicola Persico, . ""The Provision of Public Goods Under Alternative Electoral Incentives''," CARESS Working Papres 98-08, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  4. Wojciech Olszewski & Howard Rosenthal, 2004. "Politically Determined Income Inequality and the Provision of Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(5), pages 707-735, December.
  5. Dennis Epple & Richard Romano, 2000. "Collective Choice and Voluntary Provision of Public Goods," NBER Working Papers 7802, National Bureau of Economic Research, Inc.
  6. Romer, Thomas & Rosenthal, Howard, 1979. "Bureaucrats versus Voters: On the Political Economy of Resource Allocation by Direct Democracy," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 563-87, November.
  7. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, vol. 35(1), pages 57-73, February.
  8. Bergstrom, Ted C, 1979. " When Does Majority Rule Supply Public Goods Efficiently?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(2), pages 216-26.
  9. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
  10. Clive Fraser, 2003. "Is the public sector too large in a democracy?," Discussion Papers in Economics 03/12, Department of Economics, University of Leicester.
  11. 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.
  12. Dickson, Eric S & Shepsle, Kenneth A, 2001. "Working and Shirking: Equilibrium in Public-Goods Games with Overlapping Generations of Players," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(2), pages 285-318, October.
  13. Bernheim, B Douglas, 1986. "On the Voluntary and Involuntary Provision of Public Goods," American Economic Review, American Economic Association, vol. 76(4), pages 789-93, September.
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