Endogenous Timing and Income Inequality in the Voluntary Provision of Public Goods: Theory and Experiment

41 Pages Posted: 21 Feb 2019

See all articles by Jun-ichi Itaya

Jun-ichi Itaya

Hokkaido University - Division of Modern Economics and Management

Atsue Mizushima

Otaru University of Commerce

Kengo Kurosaka

Graduate School of Economics and Business Administration

Date Written: 2018

Abstract

This paper investigates how the heterogenous incomes and preferences of potential donors affect the timing of contribution decisions when it is endogenously determined by contributors themselves. More specifically, we use a simple setting with two donors, Cobb-Douglas preferences, and complete information to investigate how income inequality affects the endogenous choices of contribution timing and the level of the voluntary supplied public goods. This paper obtains the following results. First, when income is extremely unequal, potential contributors are indifferent between the timing choices of simultaneous and sequential moves, even if they have different preferences towards a public good. Second, as income inequality decreases, the simultaneous move-game is increasingly likely to emerge, because all potential contributors prefer to act as a leader. Third, in the presence of multiple public goods, contributors with higher valuations for one public good tend to be first contributors to that one. Fourth, these theoretical predictions regarding the timing decisions of individuals are not supported by the laboratory experiment, although those regarding individuals’ contribution decisions are consistent with the experimental results.

Keywords: Nash equilibrium, Stackelberg equilibrium, public good, endogenous timing, voluntary provision, income distribution

JEL Classification: D310, H410, H420

Suggested Citation

Itaya, Jun-ichi and Mizushima, Atsue and Kurosaka, Kengo, Endogenous Timing and Income Inequality in the Voluntary Provision of Public Goods: Theory and Experiment (2018). CESifo Working Paper No. 7441, Available at SSRN: https://ssrn.com/abstract=3338795

Jun-ichi Itaya (Contact Author)

Hokkaido University - Division of Modern Economics and Management ( email )

Sapporo 060-0809
Japan

Atsue Mizushima

Otaru University of Commerce ( email )

3-5-21 Midori
Otaru-shi, Hokkaido 047-8501
United States

Kengo Kurosaka

Graduate School of Economics and Business Administration ( email )

5 Kita 8 Jonishi, Kita Ward
Hokkaido Prefecture
Sapporo, Hokkaido 060-0808
Japan

HOME PAGE: http://kurosaka.droppages.com/

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