child care services and elderly care services represent the best examples of privategoods fitting their model of PP. Applying this idea to our model, the group of users could be thought as being composed of people with small children and of people with elderly relatives who need to be taken care of. Thus, increasing the fraction of users from 8 to 15% might be interpreted as a way to measure the welfare gains achievable by publicly providing both child care- and elderly-care services. Admittedly, the measure that we get represents only a crude estimate of the welfare effects. The reason is that it rests on two implicit assumptions that are unlikely to be satisfied in practice. The first is that the unitary price of child care services and the unitary price of elderly care services are the same. The second is that users either need child-care or elderly-care services but not both at the same time. Notice however that, once publicprovision of child care services is supplemented by publicprovision of elderly care services, the relative merits of PP, as compared to tagging, are likely to be magnified. The reason is that if one can in principle think at the implementation of a tagging scheme that offers different tax schedules to parents and non-parents, it seems unfeasible to implement a tagging scheme that discriminates between agents who have to take care of their older relatives and agents who do not.
of privategoods that are publicly provided in real economies, like day care services or elderly care services, consist of goods which can be characterized as being complements with labor. Two main results are obtained. The …rst is that tax dodging opportunities imply that non-separability between labor and other goods is neither a necessary nor a su¢ cient condition to make publicprovision of privategoods a welfare-enhancing policy instrument. The second result is that the availability of avoidance opportunities tends to erode the case for topping-up publicprovision schemes. This might help explaining a discrepancy between the theory and practice of publicprovision of privategoods. In fact, despite that many important publicly provided goods are complements with labor, actual provision schemes often appear to be intentionally designed to limit the opportunities to supplement.
public good to all citizens. We find that changes in inequality do not have an unambiguous effect on the size of government. Our simulation results suggest that this effect will depend on the market structure for the vertically-differentiated product. Under perfect competition the relationship between equilibrium tax rate and equality is positive while the relationship becomes U-shaped under monopoly. Moreover, the assumption of a monopolistic structure in the production of the vertically-differentiated good has two important consequences for the size of the public sector: Firstly, we find a monopoly bias in the size of government in the sense that under monopoly the median voter will vote for a higher tax rate. Secondly, the presence of monopoly induces the median voter to be in favour of publicprovision of privategoods (a positive tax rate), even in cases in which the public sector is so inefficient that under perfectly competitive conditions the political equilibrium would not be supportive of any positive tax rate.
One important area where the government could improve upon individual choice is related to goods such as education, health and insurance, which in many countries are indeed often publicly regulated, provided or subsidised. In a recent book, Le Grand (2003) discusses whether the clients of government services should be treated as pawns (that is, recipients whose decisions are mainly delegated to the provider) or queens (sovereign consumers). There are a number of reasons why individuals are particularly prone to make mistakes in decisions in these areas. First, the quantity of information may simply be too great or the causal connections too di¢ cult to understand, relative to the mental capacity of a majority of individuals. Second, mental moods can a¤ect the decisions. Third, especially in the case of education, society might want to make some of the education decisions on behalf of the parents to protect the children’s rights. Finally, returns to investments and health often accrue only in the distant future. If individuals have a tendency to undervalue future bene…ts (e.g. because of hyperbolic discounting, Laibson (1997)), they might be better o¤ if they delegated some of the decision making to an outsider, e.g. the government, to protect themselves against their own
However, the fact that the public good level is underprovided, in the sense described above, does not imply that welfare of all households will be improved by increasing the total public good provision through government intervention. After the intervention some households may end up paying more in taxes than the value of their original voluntary contribution, and there is no reason to expect that the increase in the public good level will be enough to compensate each and every one of such households. In fact, a preliminary result we present in this paper to motivate our main analysis does show that there exist robust examples of economies for which increasing the public good level in a voluntary contribution economy does not bring about a Pareto improvement. It is evident that interventions that increase the welfare level of all households involved will be more desirable from a public policy implementation point of view.
Many economists work with excludable private and club goods that can be created, traded and consumed within a framework of property-rights and markets. That framework does not work very well for managing non- excludable public and common-pool goods that are subject to free riding in provision and consumption respectively. In their analysis of non- excludable goods, Ostrom et al. (1994) say a common-pool “situation” has turned into a “dilemma” when free riding leads to the suboptimal under-provision of a public good or over-appropriation from a common- pool good at the same time as institutional reform could conceivably improve matters. Their book is devoted to addressing these dilemmas (also known as open-access dilemmas) by understanding and changing institutions to reduce free riding. It is important to note that most of their analysis and suggestions apply to non-market settings where community or government power structures rely on non-cooperative or cooperative rules, respectively.
To implement PSA, several functions need to be fulfilled. The main functions are funding, making land available through farmers’ participation, generating awareness and knowledge about land conversion, and compliance control (Miranda et al. 2006). The 1996 Forestry Law assigned to the National Fund of Forest Financing (Fondo Nacional de Financiamiento Forestal, FONAFIFO), which is a subsidiary organization of the Ministry of the Environment (Ministerio del Ambiente y Energía, MINAE). 6 The main objective of FONAFIFO is to get funds for PSA and other necessary activities to develop the natural resources sector (Forestry Law No 7575). FONAFIFO gets funding from different sources. So far, the fossil fuel tax is the main source of funding. According to Law No 8114 from 2001, FONAFIFO annually receives 3.5% of the fossil fuel tax raised by the Costa Rican government. FONAFIFO also receives funds from the sale of carbon bonds by the Costa Rican Office for Joint Implementation (OCIC), another subsidiary body of MINAE on the international market (for instance to Norway, see Miranda et al. 2003). Moreover, FONAFIFO has received funding from the GEF to protect territories included in the Mesoamerican Biological Corridor and from private hydropower companies and a beverage company (Florida Ice & Farm), which want to prevent erosion in the catchments in which they are located. These contributions are transferred through PSA to landowners in the watersheds.
To model privateprovision in a dynamic setting, I consider an infinitely repeated version of the static voluntary contributions game. To model publicprovision, I apply Bernheim and Slavov’s (2009) notion of a dynamic Condorcet winner (DCW), which extends the Condorcet winner concept to dynamic settings. A DCW prescribes a policy for every possible history in such a way that for any history, the prescribed policy choice is majority preferred to any other policy given the implications of the current choice for future outcomes. In contrast to the static setting, a one-parameter tax system is not required to ensure the existence of DCWs. Indeed, DCWs exist with a completely unrestricted tax system, in which each individual pays a different positive or negative tax rate. Lifting the one-parameter restriction on the tax system allows income redistribution to be chosen jointly with the level of the public good. 1 While the DCW concept is intuitively appealing because of its similarity to the static Condorcet concept, applying it in practice can be analytically difficult, even for very simple problems (see, e.g., Bernheim and Slavov 2004, Bernheim and Slavov 2009, Slavov 2006). Thus, an additional contribution of this paper is to demonstrate how DCWs can be found computationally, allowing one to apply it to more complex problems.
These results imply that the analysis of decentralization reforms should include an additional caveat disregarded so far in the literature. Volatility in the publicgoods production functions is a relevant factor to be taken into account in the analysis of the desirability of decentral- ization, especially if the goal is to strengthen the accountability mechanisms of developing countries. Although the common wisdom that tells us that decentralization allows for a clear delimitation of responsibilities has been confirmed by our model, accountability may not be higher under decentralization in all cases. In a moderately volatile environment a centralized government might be more apt to respond to supply shocks and insure a certain level of pro- vision of both goods. Decentralized providers of publicgoods might not be able to react to negative shocks and, as a consequence, might turn more often to private (often illegal) activi- ties given that the legal path of pursuing re-election through better service to the voter might be less attractive. In developed countries, if we assume that the production and delivery of publicgoods are relatively stable, then decentralized provision of publicgoods might allows the voter to better allocate responsibilities and is more effective in disciplining incumbents. We have restricted our analysis to the case of shocks to the production function of publicgoods but we suspect that the introduction of other types of shocks to the model, especially demand shocks, would yield similar results as long as the structure of the information asymmetry does not change, that is, as long as the shocks are only observable by the incumbent. Therefore the relevance of these findings should not be constrained to only suppy shocks but could also be extended to any kind of risk specific to publicgoods in general.
After the second world war, most of European governments were currently supposed and required to coordinate and stimulate the reconstruction effort of national economies devas- tated by the war, to provide the publicgoods and services in Health, Education, Research and all kinds of public infrastructures which have made possible the substantial economic growth of this period, and, when possible, to regulate this growth by contra-cyclical fiscal and monetary policies. Sixty years after, as a result of the movement of globalization– regionalization of all economies over the world and the construction of large economic areas on the model of the European Union common market, the common representation of governments’ tasks has progressively but dramatically changed. Public firms have been privatized, the publicgoodsprovision has been largely deregulated, welfare programs are cut and budget deficits are fought. These evolutions have been passively accepted in the general context of the weakening of the concept of ‘Etat-Nation’, under the increasing influence of liberal and free-trade ideology. Roughly speaking, even if a number of certi- tudes are nowadays seriously cracked, the paradigm of a central, omniscient, omnipotent (and benevolent) policy maker has been relaxed, replaced by the idea of a multitude of public objectives defined at several, more or less coordinated, levels: national, interna- tional, regional, or even branch level. To fulfill these objectives, most of the traditional economic policy instruments, supposed to contradict international agreements, are pre- sented as inadequate, while the others mainly focus on establishing rules that guarantee the fair competition of private firms.
The third version of our main result holds under mildly more stringent conditions than Theorems 1 and 2. These are embodied in Assumptions 6 and 7 below. We believe that this version of our main result is worth pursuing for two main reasons. First of all, by contrast to Theorem 2 above, in our next theorem the Government does not need to be able to verify the maximum value of any of the agents’ endowments. Secondly, we believe that showing that our main result still holds when each agent is given the option to veto the proposed allocation is interesting in its own right. Theorem 3 below highlights the fact that in our model the agents can be considered free to opt out of the system entirely, and consume their endowment of private good ignoring the rest of the agents in the economy. Of course in equilibrium this will not be the case.
There are further impacts derived from government regulation. "Chmielnik Zdrój" would not exist if the four local communes had not acted as guarantors for com- mercial credits used as seed capital, as was the case for the telephone cooperative as well. However, this was not done by subsidization, but was achieved by risk- sharing between private and public borrowers. Involvement of the local govern- ments in the management board of the public-private partnership should further strengthen the impact of local social interests on management decisions. Further- more, that the governmental agency developed standards for ecological production, implemented a control system to secure standards, and conducted the testing of farmers’ products was of great importance. In this regard, exchange between farmers was facilitated through governmental regulation. This freed "Chmielnik Zdrój" from starting periodic negotiations with farmers about production standards, as well as from having additional costs on the implementation of a quality control system. Just as important as market-based relations and governmental impact was com- munity governance. Most "Chmielnik Zdrój" associates had been politically active in the local government and, thus, generated an eye for local problems. As local politicians, they had an incentive to respond to local needs. Because of their detailed knowledge of local conditions, the founding members of the partnership were able to create an organization that provides locally viable solutions for current problems in agriculture and agricultural cooperation, as well as the rural economy in general. The local rooting of the partnership did not in the end secure the trust of local pea- sants in the company and consumers’ trust in the products. As interviewees men- tioned, local inhabitants combine their purchase of local products with the preserva- tion of the local cultural landscape, the creation of local jobs, and a certainty they have about the product quality due to the local provenance of the products. Consequently, local inhabitants must have a close connection (community bonds) to their region to prefer local products over products from further away.
Using a simple two-group model of the privateprovision of publicgoods, this paper investigates how endogenous formation of within-group cooperation is affected by differ- ent types and degrees of between-group interactions. We show that when between-group interactions are of the same directions and weak (strong), within-group cooperation for providing publicgoods will (will not) occur in each group for strategic reasons. On the other hand, when between-group interactions are of the opposite directions or unidirec- tional, within-group cooperation will necessarily occur. In addition, endogenous formation of cooperation is independent of absolute (individual) levels of income as well as income distribution between agents, which corresponds to an extended version of Warr’s neutral- ity theorem. We also show whether endogenous formation of within-group cooperation is beneficial or harmful to each group crucially depends on the degree of between-group interactions. The variation in the interaction degree leads to three different types of games concerning welfare consequences: the Prisoners’ Dilemma, Coordination Game, and Invis- ible Hand.
It is not surprising that proposition 2 is affiliated to results that were earlier obtained for non-excludable publicgoods, while proposition 1 is more similar to results of the privategoods literature. A welfare-maximizer has less intention to exclude any agents, as long as congestion effects and distribution costs do not force her to do so. On the other hand, the possibility of exclusion certainly is important. There is indeed a fundamental difference between the allocation rules (5) and (6), which will become clear when we consider the case of many consumers.
In the linear specification of preferences we have assumed, although the public good is a pure public good, the choice of whether or not to contribute is struc- turally independent of the level of contributions by others, i.e. donations by one individual do not crowd out donations by others. This also implies that individual donations are independent of group size. Our arguments, however, do not cru- cially hinge on ruling out free riding; we are simply modeling situations where individuals have positive incentives to give (as we observe them to do), given the contribution choices of others, and where acquiring information can affect such in- centives. In fact, our specification is fully equivalent to one where preferences are strictly convex – implying that, in principle, free riding can occur – consumption is bounded below to unity, and the marginal rate of substitution of private to public consumption (U G /U x ) is greater than ρ for ( x i,t = 1, G t = Nµ ) , and is less than 1/2
This paper analyzes the role of public and private responsibility in the provision of publicgoods. We emphasize that a typical public good will require many different inputs which raises the possibility of partnerships to exploit comparative advantages of different parties. But hold-up problems due to contractual incompleteness in specifying tasks discourage separation of ownership and management. We extend our analysis to examine the role of project design or “ideology” as a separate non-contractible input, and the possibility of crowding out in the form of a less caring government being elected because of the presence of private providers. The main application developed here is to NGOs in developing countries which, in the last two decades, have been increasingly involved in various capacities in the provision of a wide range of publicgoods and services.
This paper examines the participation behavior and the allocative eﬃciency in the econ- omy with a public good in the presence of the strong complementarity between the private good and the public good. In our model, every agent has the same Leontief utility func- tion with respect to the consumption of the private and the publicgoods. Agents can diﬀer in initial endowments of the private good and in production technology of the public good. We ﬁrst ﬁnd that whether agents voluntarily participate in the public good provi- sion depends solely on the initial endowment of the private good: the greater the initial endowment of the private good that agents have, the more likely they are to participate in the provision of the public good. Such a binary participation decision does not depend on the eﬃciency of the production technology held by agents. Second, we examine the eﬃciency of the equilibrium allocation of the voluntary participation game. We show that while the equilibrium allocation is i-Pareto eﬃcient, it is not necessarily s-Pareto eﬃcient. Third, we examine whether the voluntary transfer of the private good among agents can achieve an s-Pareto-eﬃcient allocation. We extend the voluntary participation game in such a way that agents can freely exchange their endowments of the private good, based on the model of Jackson and Wilkie (2005). We show that at the equilibrium in this model, the voluntary transfer scheme does not always achieve s-Pareto eﬃciency. The reason that the transfer scheme does not work is that the Pareto-improving transfer is always possible, but in some cases, it is diﬃcult to provide agents with an incentive to execute such a transfer scheme. In this case, an outside authority such as a government is needed to compel a Pareto-improving transfer scheme.
produces a product, prot maximization leads to the same outcome whether the rm chooses price or quantity. Thus, outcomes are iden- tical to those described in Lemma 1 (and in Proposition 1) when there is one rm in the industry or when there are two rms in the industry, each making a different version. Turning to the remaining equilibria, one might intuitively expect that because rms cannot capture the common benets from privateprovision of a public good, b(i, Y), but can capture each consumer’s willingness to pay to participate in pro- vision of the public good, some, but too little, of the public good is provided in equilibrium. This intuition is incorrect, for basically the same reasons it failed in the N 5 3, monopolistic seller of the nl-version case under Bertrand competition. When the price of the nl-version exceeds the marginal cost, demand is shifted toward the l-version. Under Cournot competition, the l-version is sold at a price greater than marginal cost (in contrast to the Bertrand case), but all of the possibil- ities remain—too little, too much, or just the right amount of the public good can be provided in equilibrium. Finally, note that with free entry, equilibria will converge to the equilibria under Bertrand competition with at least four rms. In that case, too little of the public good is provided in equilibrium, and so continuity ensures that, in the Cournot case, if there are enough active rms, too little of the public good is provided.
Because the equilibrium borrowing constraints are tighter than the natural debt limit, Ricardian equivalence does not hold. A higher public debt/GDP ratio therefore crowds out private capital, and the equilibrium interest rate rises. Laubach (2009) empirically documents that an increase in the government debt/GDP ratio has indeed a significant positive impact on the real interest rate in the US. A higher interest rate, in turn, makes it more attractive for debtors to renege on their obligations. By comparing stationary equilibria, we illustrate that credit limits set by private lenders are increasing in the stationary government debt/GDP ratio. Our framework therefore suggests that there is indeed a trade-off between public debt and the supply of private credit. Interestingly, this trade-off arises because changes in government debt affect aggregate prices. Hence, an additional contribution of our paper is to highlight the importance of general equilibrium effects, which are not captured by the partial equilibrium models presented in Hayashi (1985) and Yotsuzuka (1987).