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Public Good Provision in a Large Economy

Author

Listed:
  • Martin Hellwig

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Felix Bierbrauer

    (Max Planck Institute for Reserach on Collective Goods,Bonn)

Abstract
We propose a new approach to the normative analysis of public-good provision in an economy that is large so that any one individual is too insignificant to have a noticeable effect on the provision levels of public goods. In such an economy, the standard mechanism design problem of calibrating people's payments to the influence they have on public-good provision is moot. In the absence of participation constraints, the first-best provision rule of providing the public good if and only if the average per capita valuation exceeds the per capita cost can be implemented if the costs are shared equally among individuals. Equal cost sharing is actually necessary if the mechanism is to be robust in the sense of Bergemann and Morris (2005). However, the first-best provision rule with equal cost sharing is vulnerable to collective deviations in the sense of Laffont and Martimort (2000). Thus, people with valuations below the per capita provision cost would all benefit from a collective deviation inducing a downward bias into the assessment of the average per capita valuation. We develop a concept of coalition-proofness and show that a coalition-proof and robust mechanism cannot condition on the average per capita valuation, but only on the population shares of people with valuations above and below the per capita provision costs. The result suggests an intriguing link between mechanism design theory for large economies and voting.

Suggested Citation

  • Martin Hellwig & Felix Bierbrauer, 2009. "Public Good Provision in a Large Economy," 2009 Meeting Papers 1062, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:1062
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    References listed on IDEAS

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    Cited by:

    1. Giebe, Thomas & Schweinzer, Paul, 2014. "Consuming your way to efficiency: Public goods provision through non-distortionary tax lotteries," European Journal of Political Economy, Elsevier, vol. 36(C), pages 1-12.
    2. Martin Hellwig, 2011. "Incomplete-Information Models of Large Economies with Anonymity: Existence and Uniqueness of Common Priors," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_08, Max Planck Institute for Research on Collective Goods.
    3. Grüner, Hans Peter, 2008. "Public goods, participation constraints, and democracy: A possibility theorem," CEPR Discussion Papers 7066, C.E.P.R. Discussion Papers.
    4. Felix Bierbrauer & Martin Hellwig, 2011. "Mechanism Design and Voting for Public-Good Provision," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_31, Max Planck Institute for Research on Collective Goods.
    5. Felix J. Bierbrauer & Martin F. Hellwig, 2015. "Public-Good Provision in Large Economies," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2015_12, Max Planck Institute for Research on Collective Goods.

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    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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