Monopolistic Competition, Growth and Public Good Provision

Abstract

In the standard model, provision of a pure public good is increasing in group size if it is a normal good. I develop a model of public good provision in which private goods are supplied in a monopolistically competitive market. In this model, group size corresponds to population. I find that increases in population lead to reduced public good provision. The reason is quite simple: as population increases, the number of private goods available for consumption also increases. This raises the marginal utility of income and increases the opportunity cost of contributing to the public good.