Privately Provided Public Goods: A Theoretical, Econometricand Experimental Study of Cooperation

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The purpose of this research is to study giving for the support of privately provided public goods, like the support of charities. The project will entail the development of appropriate theoretical models, econometric analysis, and laboratory experiments. This research is motivated by recent studies showing that the classical free rider hypothesis is insufficient for describing observed behavior. The theoretical work examines a general model that includes both private and public goods motives for giving. It stresses that a general equilibrium approach to policy is necessary. The econometric research follows from the theoretical work by proposing a spatial autoregressive study of charitable giving. This technique will account for the interdependence of preferences, and will permit tests of the theoretical hypotheses. The laboratory experiments are designed to test alternative hypotheses about when and why free riding occurs. %%% Over the past ten years there has been a growing body of theoretical, econometric, and experimental work on privately provided public goods. The standard view of public goods is that if left to individuals to supply, a less than desirable amount will be privately provided, and thus government must supply these goods to attain a social optimum. However, researchers have been surprised that there is a considerable amount of cooperation among individuals in supplying certain types of public goods, as in the case of charitable giving. This project involves a three pronged approach involving the development of better theory, statistical analysis of giving behavior, and laboratory experiments studying cooperative behavior. The underlying theme of these three different approaches is that the traditional theory of public goods does not adequately explain observed behavior of private giving. This research is important because it will help explain known facts about charitable giving and, hence, provide a better framework for policy analysis. The project will also develop new methods for measuring the effects of taxes and subsidies on giving behavior.