Should I Stay or Should I Go? Public Provision of a Private Good with an Exit Option

Neil Buckley, Katherine Cuff, Jeremiah Hurley, Stuart Mestelman, Stephanie Thomas and David Cameron ()

Department of Economics Working Papers from McMaster University

Abstract: In this paper, we adapt the standard political economy models of mixed financing of private goods to allow for an exit option in which individuals can choose to neither consume nor finance the publicly provided private good. Using a controlled laboratory experiment, we empirically investigate the predictions of this model when all individuals are allow to exit (universal-exit) and when only individuals with an income at or above a threshold income level are allowed to exit (conditional-exit). Even though the incentives for high-income individuals to exit are identical under both exit schemes, high-income individuals are less likely to exit when the exit option is universal. Sensitivity treatments suggests that a number of factors may be at play in explaining this result, including learning effects and a type of endowment effect, but that other-regarding preferences do not appear to be an important factor.

Keywords: publicly provided private good; mixed financing; voting experiment (search for similar items in EconPapers)
JEL-codes: C91 D7 H42 H44 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-03
New Economics Papers: this item is included in nep-cdm, nep-exp and nep-pub
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2014-01

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