Abstract
Pure public goods provided by charitable organizations may be provided at the first-best level when the provision is financed by an appropriately designed lottery. If lottery tickets are sold using a two-part tariff, the level of provision of the public good is greater than when fees are not charged to participate in the lottery. Unlike [13] who asymptotically approach the first-best level of provision with an arbitrarily large prize, a Pareto efficient level of the public good is produced when participation fees for the lottery are set appropriately.
Highlights
When [1] first presented formal conditions for the efficient provision of pure public goods, he identified two questions that have been at the heart of the research agenda in public economics ever since; namely, how can public goods be financed, and how can citizens be induced to voluntarily reveal their tastes for these goods
A interesting recent extension to the [7] model is that of [13], who combines the standard voluntary contributions model with a lottery. He proves that when the opportunity to win a fixed-prize raffle is offered to the contributors to the subscription game, it is possible to obtain a level of provision of the public good that is superior to the level provided at the equilibrium of the classic voluntary contribution game
We prove that when the revenue generated from the fixed fee is used to finance the prize pool, the level of the public good provided by a two-part lottery game is higher than by Morgan’s fixedprize raffle
Summary
When [1] first presented formal conditions for the efficient provision of pure public goods, he identified two questions that have been at the heart of the research agenda in public economics ever since; namely, how can (and should) public goods be financed, and how can citizens be induced to voluntarily reveal their tastes for these goods. A interesting recent extension to the [7] model is that of [13], who combines the standard voluntary contributions model with a lottery He proves that when the opportunity to win a fixed-prize raffle is offered to the contributors to the subscription game, it is possible to obtain a level of provision of the public good that is superior to the level provided at the equilibrium of the classic voluntary contribution game. We prove that when the revenue generated from the fixed fee is used to finance the prize pool, the level of the public good provided by a two-part lottery game is higher than by Morgan’s fixedprize raffle It is possible using a two-part tariff for the sale of lottery tickets to exactly achieve the first-best outcome with a finite prize pool. We argue that efficiency gains could be obtained by implementing a non-linear pricing system for charitable and government lotteries
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