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Revisiting the impact of uncertainty in the private provision of public goods

Author

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  • Billette de Villemeur, Etienne
  • Cea-Echenique, Sebastián
  • Cuevas, Conrado

Abstract

We revisit the consequences of uncertainty in the private provision of a public good. We show that, despite the risk aversion of agents and the decreasing returns to scale in the production function of the public good, uncertainty may improve welfare. This may hold true even if uncertainty leads to a reduction in the aggregate amount of donations for the production of the public good. This may also hold true when uncertainty makes the production of the public good more costly on average. Our findings suggest that regulation and control over the production process for public goods might not always be a desirable policy.

Suggested Citation

  • Billette de Villemeur, Etienne & Cea-Echenique, Sebastián & Cuevas, Conrado, 2022. "Revisiting the impact of uncertainty in the private provision of public goods," MPRA Paper 114888, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114888
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    File URL: https://mpra.ub.uni-muenchen.de/115491/1/MPRA_paper_115491.pdf
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    References listed on IDEAS

    as
    1. Anwesha Banerjee & Nicolas Gravel, 2020. "Contribution to a public good under subjective uncertainty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 473-500, June.
    2. Raj Chetty, 2006. "A New Method of Estimating Risk Aversion," American Economic Review, American Economic Association, vol. 96(5), pages 1821-1834, December.
    3. 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.
    4. Eichberger, Jurgen & Kelsey, David, 2002. "Strategic Complements, Substitutes, and Ambiguity: The Implications for Public Goods," Journal of Economic Theory, Elsevier, vol. 106(2), pages 436-466, October.
    5. John Morgan, 2000. "Financing Public Goods by Means of Lotteries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 761-784.
    6. Donald C. Keenan & Iltae Kim & Ronald S. Warren, 2006. "The Private Provision of Public Goods under Uncertainty: A Symmetric‐Equilibrium Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(5), pages 863-873, December.
    7. Tamai, Toshiki, 2018. "Dynamic provision of public goods under uncertainty," Economic Modelling, Elsevier, vol. 68(C), pages 409-415.
    8. Nocetti, Diego & Smith, William T., 2015. "Changes in risk and strategic interaction," Journal of Mathematical Economics, Elsevier, vol. 56(C), pages 37-46.
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    Keywords

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    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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