A Model of Inequality Aversion and Private Provision of Public Goods

Hide-Fumi Yokoo

The B.E. Journal of Theoretical Economics, 2020, vol. 20, issue 2, 5

Abstract: I develop a model of inequality aversion and public goods that allows the marginal rate of substitution to be variable. As a theoretical foundation, utility function of the standard public goods model is nested in the Fehr-Schmidt model. An individual’s contribution function for a public good is derived by solving the problem of kinky preference and examining both interior and corner solutions. Results show that the derived contribution function is not monotonic with respect to the other individual’s provision. Thus, the model can be used to explain empirical evidence for the effect of social comparison on public-good provision.

Keywords: inequality aversion; kinky preferences; private provision of public goods; social comparison; variable marginal rate of substitution (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/bejte-2019-0066

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