Endogenous Timing and Income Inequality in the Voluntary Provision of Public Goods: Theory and Experiment

Abstract

This paper investigates how the heterogenous incomes and preferences of potential donors affect the timing of contribution decisions when it is endogenously determined by contributors themselves. More specifically, we use a simple setting with two donors, Cobb-Douglas preferences, and complete information to investigate how income inequality affects the endogenous choices of contribution timing and the level of the voluntary supplied public goods. This paper obtains the following results. First, when income is extremely unequal, potential contributors are indifferent between the timing choices of simultaneous and sequential moves, even if they have different preferences towards a public good. Second, as income inequality decreases, the simultaneous move-game is increasingly likely to emerge, because all potential contributors prefer to act as a leader. Third, in the presence of multiple public goods, contributors with higher valuations for one public good tend to be first contributors to that one. Fourth, these theoretical predictions regarding the timing decisions of individuals are not supported by the laboratory experiment, although those regarding individuals’ contribution decisions are consistent with the experimental results.