Impure Public Good Model Research Articles

The purity of impure public goods

AbstractIn this paper, we provide a new perspective on the links between the analysis of the voluntary provision of pure and impure public goods. In particular, it is shown that the impure public good model can be transformed into a pure public good one. This innovative method not only leads to new comparative statics results, but also provides new insights on the impure public good model, for example, on causes of the nonneutrality of income transfers with regard to Nash equilibria in the impure public good case.

How Does a “Green” Good Affect Environmental Quality and Social Welfare?

Abstract In this paper an impure public good model is applied to analyze the effects of introducing a green good, i.e. a consumption good that contributes to preservation of environmental quality. I distinguish three types of consumers: “grays”, who consume the green good and a private good; “greens”, who consume the green good and make additional donations to environmental organizations; and “edge” consumers, who consume only the green good. With respect to environmental quality I find that the gap between voluntary provision and optimal provision is unaffected by the introduction of the green good, no matter if consumers are gray or green. However, in the case of gray agents environmental quality is improved in absolute terms after the green good has been launched whereas it remains at the same level as before if consumers are green. The effect of the green good on the social welfare gap is more likely to be beneficial if agents are gray. The gaps with respect to environmental quality and social welfare are both closed if the agents are edge consumers.

The Purity of Impure Public Goods

In this paper we demonstrate how the impure public good model can be converted into a pure public good model with satiation of private consumption, which can be handled more easily, by using a variation of the aggregative game approach as devised by Cornes and Hartley (2007). We point out the conditions for impure public good utility functions that allow for this conversion through which the analysis of Nash equilibria can be conducted in a unified way for the impure and the pure public good model and which facilitates comparative statics analysis for impure public goods. Our approach also offers new insights on the determinants for becoming a contributor to the public good in the impure case as well as on the non-neutral effects of income transfers on Nash equilibria when the public good is impure.

Informal recycling and social preferences: Evidence from household survey data in Vietnam

This study examines the association between social preferences and recycling behavior in a developing country. A conceptual framework that modifies the impure altruism model with heterogeneous preferences and further incorporates the impure public good model is presented to study informal recycling behaviors. Based on survey data collected from 755 households in Hanoi, Vietnam, we find that the majority of sample households recycle all the recyclable materials they consume even though such recycling is not obligatory. Half the recycling households sell their recyclables to informal junk buyers, whereas the other half provide recyclables without monetary compensation. Our finding of voluntary recycling implies that a certain proportion of households have a positive marginal willingness to pay for an increase in the environmental public good. The results of the regression analyses show that recycling behavior is associated with altruism, as measured by a modified version of the self-report altruism scale. Among high-income households, recycling behavior is associated with inequality aversion, as elicited from a hypothetical game. These findings suggest that social preferences are important determinants of the private provision of public goods through the informal sector in a developing country.

Interacting innovation investments and environmental performances: a dynamic impure public good model

This paper develops a theoretical model to study how investment decisions in innovation taken by a single agent are influenced by environmental externalities produced by investment decisions taken by other agents. The model acts in a dynamic framework, where knowledge stock represents the capital good on which investment decisions over time are taken. Knowledge stock is considered as an impure public good which is responsible for both private and public benefits. We first show that the reaction function between one representative agent’s investments in innovation and the other agents’ investments in the public characteristic of the impure public good has a positive slope under general conditions. We also find that its sensitiveness is affected by the elasticity of substitution in the benefit function as well as by the degree of complementarity between the private and the public characteristics.

A generalized impure public good and linear characteristics model of green consumption

This paper provides a general framework for understanding consumer behavior related to goods and services that may be considered environmentally friendly, ethically produced, fairly traded, or some combination thereof. We generalize the impure public good model and derive its comparative static properties. The model accounts for any number of impure public (green) goods and joint production of any number of both private and public characteristics. The generalization provides a bridge between the impure public good model and the well-known linear characteristics model, both of which are special cases of the model developed here. The results show how demand for green goods and characteristics such as environmental quality depends on wealth, exogenously given levels of public goods, and the technologies of joint production. The effects of changes in technology depend critically on whether jointly produced characteristics are complements or substitutes in consumption. Several of the results are rather counterintuitive and differ in meaningful ways from existing models of impure public goods and linear characteristics. The results also illuminate several reasons for greater caution about whether it is reasonable to assume that green goods and services are necessarily beneficial for the provision of public goods.

THE EFFECTS OF UNCERTAINTY ON THE VOLUNTARY PRIVATE PROVISION OF IMPURE PUBLIC GOODS

This paper examines the effects of uncertainty on an individual's own contribution to the provision of the collective good using an impure public good model. Two types of uncertainty analyzing free-riding behavior are evaluated: (i) uncertainty surrounding the contributions of others to the public characteristic and (ii) uncertainty surrounding the response of others to an individual's own contribution. We extend previous studies by examining both the compensated and uncompensated effects of increases in such risks on the provision of the collective good. We also establish the conditions that are sufficient to determine both compensated and the total, uncompensated effects of an increase in risk on the voluntary provision of the collective good.

Voluntary Provision of Public Goods for Bads: A Theory of Environmental Offsets

This article examines voluntary provision of a public good that is motivated, in part, to compensate for activities that diminish the public good. Markets for environmental offsets, such as those that promote carbon neutrality, provide an increasingly salient example. An important result is that mean donations do not converge to zero as the economy grows large. The equilibrium is solved to show how direct donations and net contributions depend on wealth and heterogeneous preferences. Comparative static analysis demonstrates how public good provision and social welfare depend on the technology, individual wealth and an initial level of the public good. Why do individuals voluntarily provide public goods? The question has received much attention in the economics literature, and two general answers have emerged. The first is based on a standard model of private provision of a pure public good. Agents are assumed to benefit from the aggregate level of a public good and thus have some incentive for private provision. While the additional incentive to free ride ensures that the equilibrium level of the public good will fall short of the Pareto-efficient level, the theory nevertheless predicts some degree of voluntary provision. 1 The second explanation has grown out of the need to reconcile why observed levels of private provision regularly exceed those that the standard theory predicts. Research in this area can be characterised broadly as refinements or extensions on the impure public good model. The general approach is to assume that agents obtain a private benefit from some aspect of their own provision and this encourages provision beyond that which would occur if benefits came from only the public good itself. Different interpretations of the private benefit range from a feeling of warm-glow satisfaction, social approval, prestige and signalling about income. 2 The present article pursues a further explanation for voluntary provision of a public good. The idea is that provision may occur, in part, to offset other activities that have an adverse effect on a public good. Consider an activity that produces a negative externality through diminishing the level of a public good. Assuming the individual cares enough about the public good, she may seek to minimise her adverse effect on it. One possibility is for the individual to restrain her behaviour voluntarily. 3 Another possibility, which need not be mutually exclusive, is for the individual to offset some (or all) of her detrimental effect through direct provision of the public good.

Effects of the CDM on poverty eradication and global climate protection

In an impure public good model we analyze the effects of CDM transfers on poverty as well as on the global climate protection level. We construct an analytical model of a developing and an industrialized region, both of which independently seek to maximize their utility – a function of private consumption, domestic air quality, and global climate protection. They do so by distributing their finite expenditures across (1) the aggregate consumption good, (2) end-of-pipe pollution control technologies, and (3) greenhouse gas abatement. Based on our analytical findings, we develop two sets of simulations for China in which we vary the rate of the CDM transfer. The simulations differ by the assumption of China’s domestic air quality policy – the first assumes a technology-standards policy which fixes a level of end-of-pipe SO2 control, whereas the second assumes a technology-neutral policy which simply fixes the level of total SO2 emissions.

Effects of the CDM on Poverty Eradication and Global Climate Protection

In an impure public good model we analyze the effects of CDM transfers on poverty as well as on the global climate protection level. We construct an analytical model of a developing and an industrialized region, both of which independently seek to maximize their utility - a function of private consumption, domestic air quality, and global climate protection. They do so by distributing their finite expenditures across (1) the aggregate consumption good, (2) end-of-pipe pollution control technologies, and (3) greenhouse gas abatement. Based on our analytical findings, we develop two sets of simulations for China in which we vary the rate of the CDM transfer. The simulations differ by the assumption of China's domestic air quality policy - the first assumes a technology-standards policy which fixes a level of end-of-pipe SO2 control, whereas the second assumes a technology-neutral policy which simply fixes the level of total SO2 emissions.

An Experimental Study on the Gap between Willingness to Pay and Willingness to Donate for Green Electricity

According to Champ et al. (1997), we have to differentiate between willingness to pay (WTP) and willingness to donate (WTD) in eliciting individual preferences for public goods. Because strong incentives exist to understate the willingness to spend on the public good and to freeride on other people’s contributions, WTP forms the upper limit for WTD. This paper presents an experimental study on the size of the gap between WTP and WTD in the context of green electricity promotion, where making electricity markets ‘‘greener’’ can be interpreted contributing to the public good “environmental quality”. Our theoretical model is based on the impure public good model (Cornes and Sandler, 1984, 1994). It enables us to directly investigate the extent of free-riding in the sample. In the individual-choice scenario, subjects are induced to act as market participants and thereby reveal their WTP, while the public-choice scenario is designed as a majority vote on the preferred level of green electricity. Since free-riding is impossible, the latter treatment reveals subjects’ WTD. The data analysis reveals a strong treatment effect concerning the decision mode: under the public choice treatments, participants were willing to pay about three times higher contributions to green electricity than under the individual choice treatments. This observation highlights the large extent of free-riding in the private provision of the public good “environmental quality”.

Equilibrium existence and uniqueness in impure public good models

Despite widespread application of the impure public good model, surprisingly little attention has been given to the model's equilibrium properties. This paper presents a proof that clearly shows sufficient conditions for existence and uniqueness of a Nash equilibrium.

Impure public goods and technological interdependencies

PurposeThis paper aims to investigate empirically the findings of an analytical impure public good model. The impure public good model described in this study allows for the application of different technologies generating public and private characteristics. The influence of the individual technologies on the total level of (impure) public good provision is of main concern in this study.Design/methodology/approachAfter the illustration of the impure public good model, the analytical results are compared to the results of a numerical approach based on climate policy in Germany.FindingsThe study shows that comparative static analyses do not always generate clear results. Therefore, the numerical approach is helpful to derive unambiguous results. The paper finds that technologies which exclusively generate private characteristics may have significant effects on total impure public good provision, since they may replace the private characteristics of the impure public good.Originality/valueThis paper provides useful information on the influence of the individual technologies on the total level of (impure) public good provision.

Impure Public Goods and Technological Interdependencies

Impure public goods represent an important group of goods. Almost every public good exerts not only effects which are public to all but also effects which are private to the producer of this good. What is often omitted in the analysis of impure public goods is the fact that - regularly - these private effects can also be generated independently of the public good. In our analysis we focus on the effects alternative technologies - independently generating the private effects of the public good - may have on the provision of impure public goods. After the investigation in an analytical impure public good model, we numerically simulate the effects of alternative technologies in a parameterized model for climate policy in Germany.

Impure public goods and the comparative statics of environmentally friendly consumption

This paper develops an impure public good model to analyze the comparative statics of environmentally friendly consumption. “Green” products are treated as impure public goods that arise through joint production of a private characteristic and an environmental public characteristic. The model is distinct from existing impure public good models because of the way it considers the availability of substitutes. Specifically, the model accounts for the way that the jointly produced characteristics of a green product may be available separately as well—through a conventional-good substitute, direct donations to improve environmental quality, or both. The analysis provides a theoretical foundation for understanding how demand for green products and demand for environmental quality depend on market prices, green-production technologies, and ambient environmental quality. The comparative static results generate new insights into the important and sometimes counterintuitive relationship between demand for green products and demand for environmental quality.

An analysis of differing abatement incentives

In general, climate policies are evaluated with respect to their costs and benefits. But regularly an important category of benefits is omitted: ancillary or secondary benefits. In contrast to the main strand of literature on climate change the study presented here will analyze countries’ decisions on greenhouse gas abatement in an impure public good model which considers ancillary benefits. As can be shown by integrating ancillary benefits into the analysis, environmental regulations independent of the climate problem may well have an effect on countries’ greenhouse gas control. Consequently, different environmental programs should be coordinated carefully and should not be considered as being independent.

The comparative static properties of the impure public good model

This paper explores the comparative static properties of the impure public good model, in which a privately acquired activity jointly produces a public and a private good. The comparative statics are expressed in terms of familiar income and Hicks-compensated price responses. Unlike the pure public good model, the impure public model can display positively sloped reaction curves even in the absence of income effects. Comparative statics involve changes in price, or income, or the contributions of others, or the proportions in which the joint products are produced. Our representation highlights the influences that make the impure public model different from the public good case.

On the Economic Theory of Alliances

It is the purpose of this article to extend and to clarify the public goods approach to the study of alliances. In particular, the paper examines the nature of defense as a pure public good and draws the conclusion that some defense expenditure may be best classified as an impure public good due to the presence of divisibility and exclusion properties. The traditional pure public good model of alliances is analyzed in a more general framework in order to introduce more fully resource scarcity and to demonstrate the symbiotic properties of the military alliance. Two models of increasing generality recast the analysis so that defense is an impure public good. Both optimal membership size and production efficiency are studied in the impure public good model. The paper concludes with a rationale for world peace organizations based on the economic theory of clubs.