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Contribution to a public good under subjective uncertainty

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Banerjee,  Anwesha
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

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Citation

Banerjee, A., & Gravel, N. (2020). Contribution to a public good under subjective uncertainty. Journal of Public Economic Theory, 22(3), 473-500. doi:10.1111/jpet.12423.


Cite as: http://hdl.handle.net/21.11116/0000-0008-1116-C
Abstract
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.