Pareto meets Olson – A Note on Pareto-optimality and Group Size in Linear Public Goods Games

Michael Pickhardt

ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, 2012, vol. 63, issue 1, 195-202

Abstract: In this paper I examine the relationship between Pareto-optimality and group size in linear public goods games or experiments. In particular, I use the standard setting of homogeneous linear public goods experiments and apply a recently developed tool to identify all Pareto-optimal allocations in such settings. It turns out that under any conceivable circumstances, ceteris paribus, small groups have a higher Pareto-ratio (Pareto-optimal allocations over total allocations) than large groups. Hence, if Pareto-optimality of an allocation is a property that makes such allocations acceptable and maintainable, small groups will find is easier to provide Pareto-optimal amounts of a public good than large groups. This is a novel reasoning for Mancur Olson′s claim, in particular, with respect to what he has termed inclusive goods and inclusive groups.

Date: 2012
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DOI: 10.1515/ordo-2012-0115

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