Providing Public Goods in the Absence of Strong Institutions

Zurich IEW Working Paper No. 303

14 Pages Posted: 14 Sep 2006 Last revised: 18 Mar 2008

See all articles by Anke Gerber

Anke Gerber

Universit├Ąt Hamburg

Philipp C. Wichardt

University of Rostock - Department of Economics

Date Written: February 2008

Abstract

This paper proposes a simple two-stage mechanism to establish positive contributions to public goods in the absence of powerful institutions to provide the public good and to sanction free-riders. In this mechanism players commit to the public good by paying a deposit prior to the contribution stage. If there is universal commitment, deposits are immediately refunded whenever a player contributes her specified share to the public good. If there is no universal commitment, all deposits are refunded and the standard game is played. For suitable deposits, prior commitment and full ex post contributions are supported as a strict subgame perfect Nash equilibrium for the resulting game. As the mechanism obviates the need for any ex post prosecution of free-riders, it is particularly suited for situations where players do not submit to a common authority as in the case of international agreements.

Keywords: Public Goods, Cooperation, Institutions, Climate-Change Treaties

JEL Classification: C72, D61

Suggested Citation

Gerber, Anke and Wichardt, Philipp C., Providing Public Goods in the Absence of Strong Institutions (February 2008). Zurich IEW Working Paper No. 303. Available at SSRN: https://ssrn.com/abstract=930010 or http://dx.doi.org/10.2139/ssrn.930010

Anke Gerber (Contact Author)

Universit├Ąt Hamburg ( email )

Faculty of Business, Economics and Social Sciences
Von-Melle-Park 5
Hamburg, 20146
Germany

Philipp C. Wichardt

University of Rostock - Department of Economics ( email )

Ulmenstr. 69
Rostock, 18057
Germany

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