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Public Goods: Voluntary Contributions and Risk

Author

Listed:
  • Miguel Sánchez Villalba

    (Dpto. Fundamentos del Análisis Económico)

  • Silvia Martínez-Gorricho

    (Dpto. Análisis Económico Aplicado)

Abstract

We analyze two incentive mechanisms as a way of financing public goods. Our mechanism can be interpreted as a variation of a parimutuel lottery in which the total rebate (prize) is made endogenous by setting it equal to a non-increasing function of total bets. The mechanism changes the nature of the standard VCM from a Prisoner’s Dilemma to a Stag-Hunt game. We tested —and found support for— the theoretical predictions of the model by means of a computer-based experiment. The theoretical model and the supporting experimental evidence both suggest the mechanism is an efficient and equitable means to finance public goods through voluntary contributions. In policy terms, and beyond the efficiency and equity considerations, the mechanism would be easy to implement and run given its simplicity and self-sufficiency.

Suggested Citation

  • Miguel Sánchez Villalba & Silvia Martínez-Gorricho, 2014. "Public Goods: Voluntary Contributions and Risk," Working Papers. Serie AD 2014-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2014-02
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2014-02.pdf
    File Function: Fisrt version / Primera version, 2014
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    References listed on IDEAS

    as
    1. Andreoni, James, 1988. "Why free ride? : Strategies and learning in public goods experiments," Journal of Public Economics, Elsevier, vol. 37(3), pages 291-304, December.
    2. Andreoni, James, 1995. "Cooperation in Public-Goods Experiments: Kindness or Confusion?," American Economic Review, American Economic Association, vol. 85(4), pages 891-904, September.
    3. John Morgan & Martin Sefton, 2000. "Funding Public Goods with Lotteries: Experimental Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 785-810.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Sanchez Villalba, Miguel & Martinez Gorricho, Silvia, 2017. "Hybrid lotteries for financing public goods," MPRA Paper 80823, University Library of Munich, Germany.

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    More about this item

    Keywords

    Public Goods; Voluntary Contribution Mechanism; Subsidy Schemes; Laboratory Experiments;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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