All That Glows Is Not Warm Glow: Private Contributions and Social Recognition

Ratna Shrestha and Kwang Soo Cheung
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Ratna Shrestha: Department of Economics, Memorial University of Newfoundland
Kwang Soo Cheung: Department of Economics, University of Hawaii at Manoa

No 200101, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: By considering social status-seeking consumers who derive utility from the social recognition of their contributions to public goods, we investigate the efficiency and equity aspects of the equilibrium supply of public goods. Our model departs from the previous studies, such as Andreoni's (1989, 1990) warm-glow model, in that an individual's utility is affected only to the extent that his contribution is socially recognized and hence his social status enhanced. Specifically, his utility is represented by a function not only of his consumption of private and public goods but also his social status, which is then a function of the size of his relative contribution and the observability defined as the extent to which his relative contribution is publicly observed. This type of utility function is supported by an experimental result that we are mostly egoistic rather than altruistic in balancing our welfare with that of others (Offerman, Sonnemans and Schram, 1996), and an empirical finding that anonymous donations are far less popular (Glazer and Konrad, 1996). Our model obtains a unique, stable Nash equilibrium in which the supply of public goods critically depends on the distribution of income and the observability parameter. Interestingly, an increase (decrease) in the observability for income losers (gainers), for a given income redistribution, leads to an increase in the supply of public goods. In the absence of such income redistribution, the increase in the observability of the relative contribution of low-income egoists may force them to bankruptcy. We show that grouping consumers by income levels and allowing them to play the Nash game only within their respective groups may prevent this potential problem without compromising the total supply of public goods. We also discuss the implications of our analysis in the context of global pollution control and community-based charity.

Keywords: Public goods; Private provision; Social status (search for similar items in EconPapers)
JEL-codes: H41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2001
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