Optimal Altruism in Public Good Provision
38 Pages Posted: 21 Dec 2013 Last revised: 22 Jan 2014
Date Written: January 2014
We present a model of altruistically-minded-yet rational-players contributing to a public good. A key feature is the tension between altruism and "crowding-out" effects (players' efforts are strategic substitutes). We find that more altruistic behaviour can raise or reduce welfare, depending on the fine details of the environment. It is almost always optimal for a player to act more selfishly than her true preference. We discuss "carbon leakage" and the "social carbon of carbon" in global climate policy, and applications to other public-good problems. Our results highlight that it may be difficult to infer social preferences from observed behaviour.
Keywords: altruism, climate policy, crowding out, public goods, social cost of carbon
JEL Classification: policy, economics
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