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Public Goods: Voluntary Contributions and Risk

Miguel Sanchez Villalba and Silvia Martínez-Gorricho ()
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Silvia Martínez-Gorricho: Dpto. Análisis Económico Aplicado

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: We analyze two incentive mechanisms as a way of financing public goods. Our mechanism can be interpreted as a variation of a parimutuel lottery in which the total rebate (prize) is made endogenous by setting it equal to a non-increasing function of total bets. The mechanism changes the nature of the standard VCM from a Prisoner’s Dilemma to a Stag-Hunt game. We tested —and found support for— the theoretical predictions of the model by means of a computer-based experiment. The theoretical model and the supporting experimental evidence both suggest the mechanism is an efficient and equitable means to finance public goods through voluntary contributions. In policy terms, and beyond the efficiency and equity considerations, the mechanism would be easy to implement and run given its simplicity and self-sufficiency.

Keywords: Public Goods; Voluntary Contribution Mechanism; Subsidy Schemes; Laboratory Experiments (search for similar items in EconPapers)
JEL-codes: C72 C92 H41 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2014-03
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-ger and nep-gth
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