Philanthropy, multiple equilibria and optimal public policy

Sanjit Dhami () and Ali al-Nowaihi ()

No 12/08, Discussion Papers in Economics from Department of Economics, University of Leicester

Abstract: Let a large-number of small-individuals contribute to charity. We show that ‘strong aggregate complementarity’ is necessary for multiple equilibria in a competitive equilibrium. Consider two equilibria with low (L) and high (H) levels of giving. Suppose that society is stuck at L and wishes to move to H using welfare-maximizing-public-policy. Subsidies are ineffective when comparative statics at L are ‘perverse’ (subsidies reduce giving). Public policy in the form of temporary direct government grants to charity can engineer a move from L to H. We contribute to the broader question of using public policy to engineer moves between multiple equilibria.

Keywords: Charitable giving; multiple equilibria; strong aggregate substitutes; optimal mix of public and private giving; subsidies and direct grants; redistribution; privately supplied public goods. (search for similar items in EconPapers)
JEL-codes: D6 H2 H4 (search for similar items in EconPapers)
Date: 2012-04
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