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Efficient public good provision by lotteries with nonlinear pricing

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  • Liu, Tracy Xiao
  • Lu, Jingfeng
  • Wang, Zhewei

Abstract

In this paper, we introduce nonlinear pricing of lottery tickets to the mechanism of Morgan (2000), in which a lottery is used to finance the public good. In a model with n symmetric agents, we find that incorporating this instrument fully achieves the efficient provision of public good when each agent’s initial wealth is sufficiently high. In a model with two asymmetric agents, there exists a nonlinear lottery mechanism that induces efficient public good provision provided that agents are not too heterogenous. Intuitively, the proposed nonlinear pricing rule leads to a decreasing marginal cost for ticket purchase, which provides stronger incentives for agents to make contributions, compared with Morgan (2000).

Suggested Citation

  • Liu, Tracy Xiao & Lu, Jingfeng & Wang, Zhewei, 2022. "Efficient public good provision by lotteries with nonlinear pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 680-698.
    • Handle: RePEc:eee:jeborg:v:204:y:2022:i:c:p:680-698
    DOI: 10.1016/j.jebo.2022.10.033
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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