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Dual Provision of Public Policies in Democracy

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Abstract

This paper analyzes the provision of goods with consumption externalities (such as public policies) in hybrid settings: the `good' is provided in a democratic process by majority vote, but each individual agent is free to contribute additional amounts before or after the political decision has been made. Prominent examples include policy making in federal states, charities, and dual provision of health care. We show that regardless of the timing of private and public actions, the results of the median voter theorem apply. A move from a purely public system to a dual system with private ex-ante contributions is shown to be unambiguously preferred by everybody in society. In contrast, establishing an ex-post contribution regime may be opposed by a minority of high-preference individuals. The paper also derives results for a scenario with endogenous timing of private contributions. Most importantly, this general regime is shown to be majority preferred not only to the systems with ex-post and the ex-ante contributions, but also to an institutional setting with private but no public provision.

Suggested Citation

  • Christoph Luelfesmann, 2007. "Dual Provision of Public Policies in Democracy," Discussion Papers dp07-20, Department of Economics, Simon Fraser University.
  • Handle: RePEc:sfu:sfudps:dp07-20
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    File URL: http://www.sfu.ca/econ-research/RePEc/sfu/sfudps/dp07-20.pdf
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    References listed on IDEAS

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    1. Dennis Epple & Richard Romano, 2003. "Collective Choice and Voluntary Provision of Public Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 545-572, May.
    2. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
    3. Gerhard Glomm & B. Ravikumar, 1998. "Opting out of publicly provided services: A majority voting result," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 15(2), pages 187-199.
    4. Cornes, Richard & Hartley, Roger & Sandler, Todd, 1999. " Equilibrium Existence and Uniqueness in Public Good Models: An Elementary Proof via Contraction," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(4), pages 499-509.
    5. Rubinchik-Pessach, Anna, 2005. "Can decentralization be beneficial?," Journal of Public Economics, Elsevier, vol. 89(7), pages 1231-1249, July.
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    Cited by:

    1. Hagemann, Harald & Kufenko, Vadim, 2014. "The political Kuznets curve for Russia: Income inequality, rent seeking regional elites and empirical determinants of protests during 2011/2012," Violette Reihe: Schriftenreihe des Promotionsschwerpunkts "Globalisierung und Beschäftigung" 39/2013, University of Hohenheim, Carl von Ossietzky University Oldenburg, Evangelisches Studienwerk.

    More about this item

    Keywords

    Public goods; Majority voting; private provision; dual provision; federalism; charities; health care.;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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