Private Provisions of a Discrete Public Good with Voluntary Participation

Jingfeng Lu () and Euston Quah

Journal of Public Economic Theory, 2009, vol. 11, issue 3, pages 343-362

Abstract: This paper studies the mechanism that a profit-making principal should adopt to provide a discrete public good when the values of the consumers are their private information and their participation is voluntary. The free-riding issue is resolved through threatened nonprovision of the good by the provider. Every bidder is asked to announce his or her virtual value as defined in Myerson (1981). The public good is provided if and only if the sum of the bidders' announced virtual values exceeds the provision cost. When a provision decision results, each bidder pays an amount that is determined by the announcement of other consumers. No one pays when a nonprovision decision results. We find that this mechanism is implementable through an all-pay auction. A restricted profit-maximizing mechanism that implements efficient allocation is also characterized. As in Gradstein (1994), when provision is always efficient, that is, the sum of consumers' values always exceeds the provision cost, efficient allocation is achievable through a profit-maximizer. However, this is not the case when provision is not efficient. Copyright © 2009 Wiley Periodicals, Inc..

Date: 2009

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