Private Provision of Public Goods via Crowdfunding

Abstract

For various reasons, governments sometimes fail to provide public goods. Private provision of such goods might then be used if it succeeds in overcoming three main problems: high organization costs, the assurance problem, and the free-rider problem. We argue that technologies that enable crowdfunding — the method of funding projects by raising small amounts of money from a large number of people via the internet — have enabled these problems to be overcome more readily. Such technology has lowered organization costs and enabled the employment of more efficient mechanisms to reduce the assurance and free-rider problems. To illustrate these effects, we present two case studies of private provision of public goods via crowdfunding: police services in Rockridge in Oakland, California, and the Ukraine Army.

Keywords: civic crowdfunding, public goods, private provision of public goods, organization costs, assurance problem, free-rider problem

JEL Classification: H41, D70