Incentives for the over-provision of public goods

Abstract

A wide range of public goods, such as open source software, possess two often-ignored features: (i) excludable and potentially rivalrous contribution benefits (e.g. status seeking) and (ii) nonexcludable and nonrival consumption costs (e.g. adoption costs). I develop a model of the voluntary provision of public goods that incorporates these features. I find that these additional features mitigate the well-known incentive problems, but introduce new ones. Costly consumption lessens the free-rider problem, leading to more efficient provision. Private benefits similarly reduce the free-rider problem, but can lead to over-provision via a negative congestion externality on the supply side. Status-seeking induces an increase in contributions to the benefit of each contributor but imposes a cost on all other consumers and contributors. Efforts to maximize welfare by a community leader or social planner often involve transferring surpluses from consumers to producers.