Academic journal article Economic Inquiry

Voluntary Contribution Games: Efficient Private Provision of Public Goods

Academic journal article Economic Inquiry

Voluntary Contribution Games: Efficient Private Provision of Public Goods

Article excerpt

VOLUNTARY CONTRIBUTION GAMES: EFFICIENT PRIVATE PROVISION OF PUBLIC GOODS

This paper reports on a series of laboratory experiments designed to evaluate a mechanism for the voluntary provision of public good. The public good is provided if the total contributions meet or exceed a threshold and all contributions are returned if the public good is not provided. The members of the group all know the threshold, the incomes, and the valuations assigned the public good by all other members. The results support the prediction that this mechanism will yield Pareto efficient outcomes and suggest that economic agents adopt strategies which form equilibria satisfying certain refinements to the Nash equilibrium.

I. INTRODUCTION

In 1979 the Association of Oregon Faculties wished to raise money to hire a lobbyist at the state legislature. It was known that the output of this lobbyist would be a public good since any salary increases obtained as a result of the lobbying activity would accrue to all faculty in the state. The question was, how to pay the lobbyist's salary ($30,000). The Association asked all faculty in the state for individual contributions, giving guidelines according to salary. Further, the Association stipulated that all contributions would be returned if the $30,000 was not raised by a specified date. The lobbyist was hired.(1) In 1980, and again in 1985, the New Democratic Party (NDP) in Manitoba, Canada sent letters to its larger contributors soliciting additional funds to mount a coming election campaign. The letters described those being canvassed (large donors), explained the issues in the coming election and the NDP's proposed policy stance, and explained how the money was to be used. Further, the letters stipulated that a target had been set ($200,000 in 1980 and $250,000 in 1985) and that the NDP would refund all contributions if the target was not reached by a certain date. Both campaigns were successful, and in 1985 the total contributions were $251,300, or 1/2 percent more than the target.(2) In 1986 a ski facility near Boulder, Colorado went into bankruptcy. At a general meeting the local Nordic Ski Club announced to its members that it wished to maintain the Nordic portion of the facility and that this would require raising some announced amount of money from the members to pay for trail upkeep. If the total contributions were insufficient to keep the facility open, the members would have their monies refunded and the facility would be allowed to close down. The Nordic facility was successfully operated until 1988 when a private firm purchased the entire facility and restored both the downhill and Nordic operations.(3)

Such successes in obtaining voluntary contributions to the provision of a public good stand in contrast to the predictions of Samuelson [1954] and many other economists who suggest that individuals would not voluntarily contribute toward the provision of public goods owing to the incentive to free ride. More recently, a large literature has emerged which presents theoretical and empirical evidence mitigating this conclusion. Generally this literature shows that voluntary provision of public goods may be greater than zero, in certain cases, but inefficient.(4) In this paper we evaluate a particular class of public goods provision mechanisms which capture the important characteristics of the anecdotes related above.

Those donating to the salary of the lobbyist, the election campaign, and the ski facility were all engaged in a voluntary contribution game for the provision of a public good. These situations have several features in common. In each case the public good could be produced only if the sum of the contributions met or exceeded some threshold, and this threshold, the cost of the collective good, was known to the individuals being asked to contribute. The total number of individuals in the consuming group was known, with more or less precision, by the individuals involved. …

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