On the voluntary provision of “weakest‐link” public goods: The case of private information

We develop a game-theoretic model of private-public contribution to a long-term project with sequential actions and moral hazard. A private agent is one who is in charge of both the financial contribution and the management effort, these two actions entailing private costs and uncertain ex-post private and social benefits. A public agent is one who decides the amount of public funding to this quasi-public good, knowing that the size and the probability of attaining a surplus ex post depend on the private agent's effort. We consider four publicfunding scenarios: benefit-sharing versus cost-sharing crossed with ex-ante versus ex-interim government intervention. We test our theoretical predictions by means of an experiment that confirms the main result of the model: Cost-sharing public intervention is more effective than benefit-sharing in boosting private financial contribution to the project. Furthermore, when public intervention comes after private contribution (ex-interim government intervention), both public-funding scenarios have a negative impact on the private management effort. In our model, the latter result is explained by the private agent's high degree of risk aversion. These results have policy implications for strategic investments with long-term social consequences.In deciding the optimal timing and method of the contribution, governments should also consider the indirect effects on agents' long-term management efforts. J Public Econ Theory. 2020;22:769-820.wileyonlinelibrary.com/journal/jpet Andreoni, Kuhn, and Samuelson (2018) analyze a two-stage game where in the second stage a two-period prisoner's dilemma is played, and in the first stage the players can choose the allocation of the stakes across the two periods of the prisoner's dilemma. They provide experimental evidence of a higher joint payoff in the second stage if in the first one the stake allocation is endogenously chosen rather than randomly determined. Although in a completely different setting, also in our two-stage game the first-stage choice-initial investment-positively affects the (private-public) joint payoff in the second stage.ATTANASI ET AL. | 771uncertain at the ex-ante stage and depend on the private agent's level of effort after the initial contribution.Thus, our model focuses on the sequential game between the public agent and a representative private agent and aims to determine the optimal contractual scheme to deal with the presence of uncertainty and asymmetric information.Although the two approaches differ, our main theoretical prediction confirms and extends a crucial result from Andreoni (1988a) and Bergstrom et al. (1986) regarding the total or partial irrelevance of public contribution to the total private supply of a public good. Andreoni (1988a) and Bergstrom et al. (1986) make different assumptions but show that, when the government supplies some amount of the public good financed by taxes, the government's contribution causes an equivalent or smaller reduction in the amount of private contribution (crowding-out...

Section: Resultsmentioning

confidence: 99%

Private investment with social benefits under uncertainty: The dark side of public financing

Attanasi

Buso

et al. 2019

“…From a more general perspective, this paper also contributes to literature applying models of information design and strategic information transmission to real world examples. Applications have been made, for instance, in the literature on public goods (See, among others, Agastya et al, 2007;Barbieri & Malueg, 2019;Palfrey & Rosenthal, 1991. ), in the contest literature (e.g.…”

Section: Hennigsmentioning

confidence: 99%

Conflict prevention by Bayesian persuasion

Hennigs

2021

Drawing upon the Bayesian persuasion literature, I show that a mediator can provide conflicting parties strategically with information to decrease the ex-ante war probability. In a conflict between two parties with private information about military strength, the mediator generates information about each conflicting party's strength and commits to sharing the obtained information with the respective opponent. The conflicting parties can be convinced not to fight each other. The conflicting parties benefit from mediation, as the ex-ante war probability is reduced. The benefit is taken up by weak conflicting parties. This benefit is larger when war is costlier and when the war probability absent mediation is higher. | INTRODUCTIONUnderstanding conflict resolution and prevention is a central concern of international relations. Mediation is one of the most widely used techniques in international crises management. Mediation occurred in 37 out of the 84 conflicts registered by the International Crisis Behaviour Project in the period from 1990 to 2015. For 27 out of these 37 cases, mediation was named as either an "important" or the "most important" factor for easing tensions (see Brecher & Wilkenfeld, 1997;Brecher et al., 2017). This paper contributes to the theoretical understanding of effective mediation by showing how a mediator can use research and intelligence to reduce the ex-ante war probability. Specifically, a mediator can convince conflicting parties not to fight each other by strategically providing them information about their respective opponent.This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

“…However Bramoullé and Treich () assume that all contributors face the same uncertainty and, therefore, do not examine the impact on public good provision of the contributors' heterogeneity in their perceptions of uncertainty. There is also a significant literature that has examined the possibility that contributors could be uncertain about others' valuations of the public good, either in the setting of Bergstrom et al () where the public good provided is the sum of the individual contributions, or in the “Weakest‐Link” setting (see, e.g., barbieri & Malueg, ) where the provided public good is the smallest of all individuals contributions. Bac () has considered an infinitely repeated game between two contributors who have beliefs about the preferences of the other.…”

Section: Introductionmentioning

confidence: 99%

Contribution to a public good under subjective uncertainty

Banerjee

Gravel

2019

This paper examines how voluntary contributions to a public good are affected by the contributors' heterogeneity in beliefs about the uncertain impact of their contributions. It assumes that contributors have Savagian preferences that are represented by a two-state-dependent expected utility function and different beliefs about the benefit that will result from the sum of their contributions. We establish general comparative statics results regarding the effect of specific changes in the distribution of beliefs on the (unique) Nash equilibrium provision of the public good, under certain conditions imposed on the preferences. We specifically show that the equilibrium public good provision is increasing with respect to both first-and second-order stochastic dominance changes in the distribution of beliefs. Hence, increasing the contributors' optimism about the uncertain benefit of their contributions increases aggregate public good provision, as does any homogenization of these beliefs around their mean."The debate's over. The people who dispute the international consensus on global warming are in the same category now with the people who think the moon landing was staged on a movie lot in Arizona." (Al Gore) "Whether global warming or climate change. The fact is we didn't cause it. We cannot change it." (Donald J. Trump) (A5)