Abstract
This paper investigates the private provision of public goods in segregated societies. While most research agrees that segregation undermines public provision, the findings are mixed for private provision: social interactions, being strong within groups and limited across groups, may either increase or impede voluntary contributions. Moreover, although efficiency concerns generally provide a rationale for government intervention, surprisingly, little light is shed in the literature on the potential effectiveness of such intervention in a segregated society. This paper first develops an index based on social interactions, which, roughly speaking, measures the welfare impact of income redistribution in an arbitrary society. It then shows that the proposed index vanishes when applied to large segregated societies, which suggests an “asymptotic neutrality” of redistributive policies.
Highlights
Private contributions are important to the provision of many public goods
We show how the Bonacich transfer index can be used to investigate the welfare impact of an income redistribution that is confined to components of contributors with a special network structure
This paper shows that understanding the network structure is very important when designing policies that could enhance the private provision of public goods in networks
Summary
Private contributions are important to the provision of many public goods. Examples include essential infrastructure, charitable education, and awareness campaigns helping individuals make better decisions over a wide spectrum of issues ranging from health and environment to voting. We investigate the welfare effects of income redistribution on the private provision of public goods in networks. The higher is the heterogeneity of Bonacich centralities of a component of contributors, the more per-capita welfare gain can be achieved from a unit of income redistribution; in this regard, we show that the Bonacich transfer index may take a wide range of values. The Bonacich transfer index may be thought of as a summary statistic of the welfare effect of income redistribution that is determined by the network structure of interactions. We show that the Bonacich transfer index vanishes when applied to large components of contributors that display segregated interactions This implies an “asymptotic neutrality” of income redistribution.
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