Deciding for others: Local public good contributions with intermediaries

Abstract

Given that pure public goods' broader use is often limited by distance, congestion, or borders, local public goods are prevalent. The decision for the provision of these local public goods is often made by individuals who do not get to consume them. It is, therefore, not clear whether the classic free-riding problem result holds in this framework. We study the provision of a local public good where the public good contribution decisions are made by non-local intermediaries who neither contribute from their own endowment nor directly benefit from the local public good. Each intermediary decides for only one public good beneficiary. Intermediaries make decisions under two compensation mechanisms where their incentives are either non-aligned (fixed), or aligned (variable), with those of the beneficiaries they represent. We find that the use of intermediaries, regardless of the compensation mechanism, significantly increases contributions to the provision of the public good.