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Discrete public goods with incomplete information

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  • Monteiro, Paulo Klinger
  • Temimi, Akram
  • Menezes, Flavio Marques

Abstract

We investigate a simultaneous discrete public good provision game with incomplete information. To use the terminology of Admati and Perry (1991), we consider both contribution and subscription games. In the former, contributions are not refunded if the project is not completed, while in the latter they are. In the presence of complete information about individuals' valuations for the public good, the difference between the equilibrium outcomes of a subscription game and a contribution game is not significant. However, there is both casual evidence from the fund-raising literature and experimental evidence that subscription games are ``superior '', i.e., a refund increases the chance of providing the good given that it is efficient to do so. Our analysis shows that this is indeed the case in the presence of incomplete information. We compute a symmetric equilibrium for the subscription game and show that it is not necessarily efficient. This inefficiency stems from the difficulties arising in coordinating to overcome the free-rider problem in the presence of incomplete information. Although it is well known that informational disparities impose limits on the efficiency of outcomes, the novel feature of our analysis is to explicitly model the resulting trade-off --- when deciding how much to contribute towards the public good --- between increasing the likelihood of provision and creating incentives for free-riding by the other player. Moreover, we show that for the contribution game, ``contributing zero'' is the only equilibrium for a given range of the fixed cost of provision and for a family of distributions.
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Suggested Citation

  • Monteiro, Paulo Klinger & Temimi, Akram & Menezes, Flavio Marques, 1999. "Discrete public goods with incomplete information," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 359, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:359
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    References listed on IDEAS

    as
    1. 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.
    2. d'Aspremont, C. & Gerard-Varet, L. -A., 1982. "Bayesian incentive compatible beliefs," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 83-103, June.
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    Cited by:

    1. Shingo Yamazaki, 2019. "Private provision of discrete public goods: the correlated cost case," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(3), pages 477-496, March.

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H4 - Public Economics - - Publicly Provided Goods

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