Top PDF A few can do: Ethical behavior and the provision of public goods in an agent-based model

(non-provision of the public good) and PPL (positive provision level of the public good), together with the relative shares of relevant PPL sub-specifications. With respect to the first two layers (group composition and frequency) only the share of c- types in the population matters, because the PPL share does not change if type interaction is impossible so that T-Pareto [T-SPL] allocations become SPL [C-SPL] allocations. For both layers and for both simulations, it was shown in Table 2 that the PPL share was well in excess of the share of c-types in the population. Moreover, this observation holds true if the third layer (welfare) is considered and corrections are taken to assess the pure impact of the c-type share. Further, they continue to hold and may even be reinforced if alternative type distributions and higher group sizes are considered, as demonstrated in section 5. These findings clearly indicate that non-provision of public goods, as predicted by the Samuelson model, can be substantially reduced by even a small fraction of ethical motivated agents in the population and that it can be eliminated for any type distribution that contains a non-empty set of c-types, if the group size n is sufficiently large. It must be emphasized, however, that Samuelson (1954, p. 389) himself already recognized that Kantian behavior patterns would lead to different results. Yet, it might not have been entirely clear that it may well be sufficient if just a few actually show such behavior patterns.

1 Introduction The standard framework for the analysis of private provision of public goods is the Nash-Cournot model in which agents choose their contributions si- multaneously and independently. An important assumption of these models is that each contributor is a single individual or else a private organization which behaves as a single player in provision games. In reality, most volun- tary public goods are contributed by a variety of groups consisting of het- erogenous agents, such as private companies, NPO’s, groups of volunteers, families and so on, in the society rather than individuals. Torsvik (1994) recognizes the importance of this observation, and shows how a representa- tive democracy may induce each group to act strategically in the election of representatives who subsequently decide the contribution to a public good when several groups voluntarily contribute towards the public good. In this paper we particularly focus on the contributing behavior of the family to public goods. Each family comprises several heterogeneous agents character- ized by different preferences as well as different income sources - for example, a given family may consist of a husband, a wife, children, a grandmother, and so on. Families make significant voluntary contributions to public goods in the real world. Furthermore, members of a given family strategically interact with each other, not only through voluntary contributions to household pub- lic goods, but also through voluntary income transfers. Thus their collective contribution decisions to contribute to public goods may be quite different from that of a single agent. Our main task is to clarify the implications for income redistribution policy between different families rather than be- tween members of a given family (see, e.g., Konrad and Lommerud, 1995); in particular, given the complicated collective decisions within a family, we examine whether Warr’s neutrality theorem holds or not.

The questions designed to measure altruistic attitudes followed the same format. Re- spondents were asked to indicate on a …ve-point scale the extent to which they agree or disagree with a series of statements that probed di¤erent aspects of the Schwartz (1970, 1977) model for the activation of altruistic behavior. While questions of this type are com- monly used in experimental economics to explain private provision of public goods, they are less commonly used in the …eld where such data are more di¢ cult to obtain. 13 This, however, was not a limitation for this study given the household mail survey. The scale that we use is based on a subset of the items used by Clark, Kotchen, and Moore (2003). The speci…c items are listed in the Appendix Table, along with the statistics to test for internal consistency. Based on these results, it is reasonable to combine the responses to form another summated scale that measures a general altruistic attitude.

Our approach is closer to the top-down “club” coalitions in Nordhaus (2015), with multiple clubs. Similar to this paper, we assume enforcement is possible among the members of the clubs, and among these members only. However, in Nordhaus’ framework, TU does not justify the assumption that heterogeneous members of the club can maximize its joint surplus, because each member can make a transfer proposal, which leads to instability. In contrast, we assume a federation is an existing entity with an identified leadership, able to maximize joint surplus and ensure participation of all via transfers, very much like the head of a household in Bergstrom (1989). Our contribution furthermore belongs to a growing literature which en- riches the structure of the players involved in international cooperation. For instance, Köke and Lange (2017) consider the political economy within countries as a driving force of the scope and size of climate agreements, and Marchiori et al. (2017) study the game between lobbies and govern- ments to explain why the latter may want to use climate agreements in order to improve their bargaining position. Interpreting our approach in the language of coalition-formation literature, a federation can be seen as a

This paper concerns redistribution and provision of public goods in an economic federation with two levels of government: a local government in each locality and a central government for the economic federation as a whole. We assume that each locality is characterized by two ability-types (high and low), and that their distribution differs between localities. The set of policy instruments facing the central government consists of a nonlinear income tax and a lump-sum transfer to each local government, while the local governments use proportional income taxes and the transfers from the central government to finance the provision of local public goods. The purpose is to characterize the tax and expenditure structure in a decentralized setting, where the central and local governments have distinct roles to play, and also compare this tax and expenditure structure with the second best resource allocation. We show how the redistributive role of taxation is combined with a corrective role, since tax base sharing among the central and local governments gives rise to a vertical fiscal external effect. In addition, the central government does not in general implement the second best resource allocation with the instruments at its disposal.

Early discussions of market failures focused on natural monopolies, exter- nalities and public goods (Stiglitz, 1991). An externality constitutes a direct effect of a market participant’s decision on another market participant that is not a party to that decision. A prime example for a negative externality is environmental pollution as a byproduct of production. In the traditional view an externality is internalized by taxing the emitter or by making him liable for his activity. The tax that induces complete internalization of an externality is called Pigouvian tax. Coase (1960) critiques in “The problem of social cost” that most economists have adopted the Pigouvian approach. He points out that if transaction costs are sufficiently low, parties affected by an externality can find an agreement maximizing the social product if prop- erty rights are well defined and enforceable. Stigler dubbed this reasoning the Coase Theorem (Coase, 1988). But Coase (1960) never believed that market exchange has zero transaction cost, because he wrote earlier, in 1937 , that firms exist due to transaction costs. His critique was that in a world with zero transaction costs, as often assumed in economic models, a Pigouvian tax is obsolete because private costs equal social costs. However, this Coasian view highlights that externalities can either be internalized by taxes, quotas, or by fostering bargaining over the extent of the externality when transaction costs are sufficiently low. The latter solution is less intrusive but, as every transaction, requires well defined and enforceable property rights. Crucially, the role of government as an enabler of Pareto improvements should therefore depend on the institutional context.

Second, the environment is generalized to cover weakly monotonic increasing instead of linear valuation functions. In this case Pareto optimality will not be enough to ensure that an outcome is part of a recurrent class. Since utility gained from the public good no longer increases linearly with the contribution towards the public good, there might now be coalitions of agents who benet from reducing their own contributions even if all other agents then contribute nothing any more. In this environment an outcome is an outcome of a recurrent class of the mechanism under Unexploitable Better Response Dynamics if and only if it is in the core and any deviation of a coalition from this outcome makes at least one agent in that coalition strictly worse o. This holds if at least one such outcome exists. Existence can be guaranteed by adding only innitesimal monetary incentives.

hanced by redistributing wealth from less altruistic to more altruistic people. We add to this literature by showing that redistribution can be bene…cial even for the case of symmetric preferences and even if the set of contributors is left unchanged. While the reason for inequality in our model stems from the heterogeneity in the agents’characteristics, the agents’fairness concerns appear to be an important factor in‡uencing the optimal degree of inequality. In recent years, there also has been a couple of (predominantly experimen- tal) studies investigating the e¤ects of wealth heterogeneity on public good provision. However, empirical results from these studies are not clear-cut. While some papers …nd that inequality leads to lower contributions (e.g. Os- trom et al. (1994), Van Dijk et al. (2002), Cherry et al. (2005) and Anderson et al. (2008)), other studies report a neutral or even positive e¤ect of wealth inequality (e.g. Chan et al. (1999), Buckley and Croson (2006)). 2 One rea- son for the non-conclusive evidence might be that these studies investigated inequality only in the income dimension. Yet, the claim of our study is that there is an interplay of inequality in the income dimension and heterogeneity in the agents’characteristics that a¤ect “psychological”inequity costs which might hamper the cooperation in social dilemmas.

This paper studies the optimal provision mechanism for multiple excludable public goods. We brie‡y consider a somewhat more general setup where we obtain some characterization results, but most of the paper focuses on a parametric version of the model where valuations are binary. In the binary valuation case, we demonstrate that there is a considerable degree of bundling in the optimal solution if a regularity condition, akin to a hazard rate condition, on the distribution of valuations is satis…ed. If the regularity condition is violated, which happens when valuations are too strongly positively correlated across goods, the optimal solution replicates the separate provision outcome. To motivate the importance of a better understanding of bundling of non-rival goods, we note that many goods that are provided in bundles are close to fully non-rival. The most striking example is the access to electronic libraries, for which the typical contractual arrangement is a site license that allows access to every issue of every journal in the electronic library. Another example is cable TV, where the basic pricing scheme consists of a limited number of available packages. Other examples include computer software and digital music …les. For several of these cases, the pros and cons of bundling for the consumer have been frequently debated by the media, legal scholars, and in the courtroom. Still, there is no normative benchmark that explicitly considers the non-rival nature of these goods in the economics literature.

In the remainder of the paper, we develop rigorously a scheme for the decentralized efficient provision of public goods along the lines we have just described intuitively. Besides the two properties we have just described, the proposed scheme has the chief virtues of being continuous and balanced. In our view, in practical terms, we believe it could be described as a playable game. The latter claim, although clearly vague in some way, will be substantiated in Subsection 5.1 below in where we describe the basic scheme. In short, we believe that the game we propose is simple and easy to interpret from the part of the players; each agent only has to declare an amount of desired increase in the amount of public good, and a vector of redistributive transfers of initial endowments (across other agents).

This paper analyzes the provision of local public goods with posi- tive spillovers across jurisdictions. If spillovers are symmetric, the non- cooperative game played by jurisdictions admits a unique equilibrium, and an increase in spillovers reduces the total provision of public goods. Smaller jurisdictions always reduce their contribution, but larger jurisdic- tions can increase their contribution. When spillovers are asymmetric, equilibrium is unique if spillovers are low, while multiple equilibria exist for high spillover values. In the case of two jurisdictions, an increase in the flow of spillovers to one jurisdiction benefits agents from that juris- diction but harms agents in the other jurisdiction. Beyond the case of two jurisdictions, the effect of changes in spillovers cannot be signed. An increase in the spillovers flowing to a jurisdiction can actually result in an increase in the supply of public goods by that jurisdiction and harm agents residing in it, while benefiting agents in the other jurisdictions. The results of the paper reveal the complexity of interactions that will plague the design of institutions for multijurisdictional local public good economies with spillovers.

This paper addresses the question of provision of a di¤erentiated public good within an organization. Think of this as departmental service in academia, for example. That might include committee work, seminar organizing, chair assignments, etc. All members of the organization prefer the public good to be provided rather than not, but might disagree about certain dimension or variety of the public good. In the context of the academia example, this might re‡ect research …eld or methodological specialization which a¤ects the focus of seminar series or hiring priorities. A principal (department chair or median faculty member) assigns the public good provision to one of the agents (say, junior faculty members). A contributing agent then gets the opportunity to provide a public good variety he prefers. However, the public good provision involves certain costs for a contributing agent. At the same time, there might be certain bene…ts too. In the context of the previous example, running department seminar series requires time but also implies greater academic visibility (useful at earlier career stages) and probably teaching load reduction. Moreover, being a "good citizen" is always appreciated in academic departments and might be taken into account during tenure evaluation. Therefore, provision of some di¤erentiated public goods implies net costs for a contributing agent while provision of others implies net bene…ts. The agents then tend to avoid providing some public goods but value (and therefore compete for) the opportunity to provide others. What variety of the di¤erentiated public good will be provided in such an institutional environment?

In this paper, we provide simple geometrical proofs to various results from the public- goods literature using the Kolm triangle. The Kolm triangle is the analogue of the Edgeworth box for an economy with two agents, one private good and one pure pub- lic good. Malinvaud (1971) refers to unpublished ‘research papers’ by Serge-Christophe Kolm, while the triangle managed to appear a bit earlier than Malinvaud’s paper in Ch. 9 (pp. 211–221) of Kolm’s text on public economics (Kolm 1970). Schlesinger (1989) describes it in good detail and illustrates its use in analyzing Lindahl and Nash equilibria. Despite its potential, the Kolm triangle hardly appears in the literature. 1 Sullivan and Schlesinger (1986) analyze the relationship between various canons of ‘just’ taxation with the help of this graphical device. Groves and Ledyard (1987) use the triangle to illustrate incentive-compatibility problems in an economy with public goods. More re- cently, Chander (1993) uses the triangle to discuss dynamic procedures and incentives in public-good economies. William Thomson uses this tool in various papers dealing with allocation mechanisms (Thomson 1987), lecture notes (Thomson 1990), and concepts of equity (Thomson 1993). Leamer (1987) uses a similar device to prove factor price equalization in international trade. More surprising, perhaps, is the fact that the Kolm triangle has not found its way in public economics textbooks. An exception is Laffont (1988) who displays a few diagrams of the Kolm triangle, although he just barely refers to them in the text.

has to be unity. This implies that in the equilibrium marginal income tax rates have to be above unity for some agents and below unity for others. 5 3.2 Progressive Tax Schemes Income tax schemes are often characterized by a progressive tariff, so let us take a closer look on progressive taxation. Progressive tax schemes give rise to two problematic properties with respect to the considered tax-refund systems: Firstly progressive income taxation implies degressive subsidy rates when donations are deductible from taxable income, implying that those agents with the highest income level receive the highest subsidy rates. Secondly, it holds for each agent, regardless of his gross income level, that the first unit of private provision of the public good is funded at the highest rate, with rising provision the subsidy rate then declines. In the equilibrium marginal benefit and effective price are equalized (Figure 1: x 1 ).

child care facilities, the elderly may prefer aordable public transport and access to specic recreational opportunities and cultural oerings. The nec- essary adjustments in the public budget may create conicts between gener- ations. As the median age increases, majority voting outcomes may shift to benet the elderly population at the cost of the younger generations. Such generational conicts in local service provision have been addressed in other contributions, in particular with respect to the provision of public education (e.g. Poterba (1998) for the US and Grob and Wolter (2005) and Cattaneo and Wolter (2009) for Switzerland). Konrad (1995) shows that gerontocracies have an excessive incentive to invest in immobile infrastructure as opposed to mobile human capital. Our model also contains a strategic investment motive on a subnational level. Haupt and Peters (2003) consider an over- lapping generations model in which the contribution rates to public pension schemes lead to interregional competition. When the young can strategically migrate, their exploitation by the gerontocracy is limited. The exit option of migration also plays a crucial role in our model. Finally, the studies by Borge and Rattsø (1995); Borge and Rattsø (2008) are closely related to this chapter. They mainly focus on local services, such as child care and elderly care, and analyze the negative eect of ageing on the per capita spending on services for the younger cohorts. In contrast to this chapter, the inuence of local interaction and scal competition plays no role.

emerging literature has examined the determinants and impacts of governance at the country level using cross-country data, studies at the more micro-level are scant, largely because of lack of data (La Porta et al. 1998). Cross-country results generally indicate that good governance is important for economic growth and public goods provision. Despite their usefulness in revealing empirical regularities at the international level, cross-country analyses provide little policy guidance on how to improve current governance structures at community levelsthe levels at which change can most feasibly be implemented. In the context of developed countries, some theoretical and empirical evidence has shown that democratic governance does affect public goods provision (Lizzeri and Persico 1999; Besley and Burgess 2001; Besley and Coate 2001), but knowledge of the effect at the local level, in particular in developing countries, is very limited (Dethier 2000).

Most analyses of optimal provision of public goods or of the excess burden of taxation regard individual utility as depending directly on one’s own con- sumption and leisure. However, utility can depend directly on the consump- tion or income of others. Several studies have explored the significance of this interdependence in consumption. The earliest work tended to be theoretical. For example, almost 30 years ago Boskin and Sheshinski (1978) and Layard (1980) explored theoretically how optimal redistributive taxation is affected when individual utility depends on one’s relative income or consumption. Recently, a number of studies have aimed to assess empirically the extent to which individual utility depends on others’ consumption or income. In par- ticular, several studies have sought to determine the strength of a particular form of interdependence here termed the status effect – the utility-impact of one’s consumption relative to others’ consumption. 1 Such studies can be

The results of such rebalanced priorities can be seen in experimental or empirical settings where different behaviors interact. When free riders earn (or take) larger payoffs at the expense of others, they lower overall group efficiency. When cooperators share the burden of providing collective goods, they help increase average payoffs and thus increase group efficiency. In most situations, reciprocators magnify the actions of free riders or cooperators by matching negative or positive actions, thereby creating a positive feedback loop that drives outcomes towards negative or positive extremes respectively. Environmental parallels are clear. Cooperation to protect local ecosystems will, for example, result in greater shared benefits, and those benefits will encourage further cooperation to protect the resource.

The proof proceeds as follows. First it is shown that there cannot be an undetectable collective manipulation that involves productivity parameters. This would require some type 1 individuals to be willing to claim a high productivity and some type 2 individuals to be willing to claim a low pro- ductivity. Due to the single-crossing property, this is not compatible with I-IC unless there is pooling. Then, it is observed that undetectability in a two-class economy requires all individuals who report the same productivity parameter to agree on the reported taste parameter as well. Hence, there remain only two kinds of collective manipulations: those where only the indi- viduals of one class lie on their taste parameter and those where individuals of both classes jointly lie on their taste parameter. The former kind of col- lective manipulation is ruled out by the C-RT-C property. The latter would require that both classes prefer a different state perception. It is shown that this situation can not arise under a Pareto-optimal utility allocation.

In addition to incentive compatibility, renegotiation proofness and feasi- bility, I now impose the requirement that the allocation be individually rational, so everybody is willing to participate voluntarily, and the mecha- nism designer does not have to rely on the government’s power of coercion. This additional requirement will add another perspective to the relation be- tween income taxation and public-goods provision and pricing. In Hellwig (2004 a), I had shown that, in a large economy with exogenous produc- tion, the imposition of a participation constraint turns the condition for feasibility into a government budget constraint requiring that the costs of public-goods provision be covered by the payments that people are willing to make in order to avoid exclusion from those public goods where exclusionis feasible. With a requirement of renegotiation proofness as well as incen- tive compatibility, the resulting mechanism design problem was shown to be equivalent to the Ramsey-Boiteux problem of choosing a vector of admission fees subject to the requirement that admission fee revenues suffice to cover the costs of public-goods provision. Here I study how these implications of the individual-rationality requirement are affected by the availability of nonlinear income taxation as an additional source of finance.