Public Good Provision with Participation Costs

25 Pages Posted: 20 Apr 2020

See all articles by John R. Conlon

John R. Conlon

University of Mississippi - Department of Economics

Paul Pecorino

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: March 31, 2020

Abstract

Esteban and Ray (2001) develop a model with an increasing marginal cost of contribution and overturn the Olson hypothesis that large groups are unable to provide themselves with a rival public good. Pecorino and Temimi (2008) consider fixed, but avoidable, participation costs in this framework. They conclude that public good provision must fall to zero in a large group if the degree of rivalry is sufficiently high, because the individual payoff goes to zero at the interior equilibrium. Thus, individuals prefer a corner solution of zero contributions to incurring the fixed participation cost. However, when the degree of rivalry is sufficiently low, they conclude that provision of the public good will rise without bound. We show that this latter conclusion is incorrect, and that any degree of rivalry will lead to a total breakdown in public good provision in a sufficiently large group. Not including the fixed participation cost, the difference in the payoff to an individual when she contributes to the public good and when she does not contribute goes to zero in a large group. Thus, in a sufficiently large group, she will not be willing to incur the participation costs. The same result also applies to the Morgan (2000) lottery mechanism.

Keywords: Public Goods, Group Size Paradox

JEL Classification: D7, H41

Suggested Citation

Conlon, John R. and Pecorino, Paul, Public Good Provision with Participation Costs (March 31, 2020). Available at SSRN: https://ssrn.com/abstract=3566000 or http://dx.doi.org/10.2139/ssrn.3566000

John R. Conlon

University of Mississippi - Department of Economics ( email )

371 Holman Hall
University, MS 38677
United States

Paul Pecorino (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-0379 (Phone)
205-348-0590 (Fax)

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