CRIEFF Discussion Paper Number 0802
The
Important Thing Is not (Always) Winning but Taking Part: Funding Public Goods
with Contests
Marco Faravelli (University of St. Andrews)
Abstract
This paper considers a public
good game with heterogeneous endowments and incomplete information affected by
extreme free-riding. We overcome this problem through the implementation of a
contest in which several prizes may be awarded. We identify a monotone
equilibrium, in which the contribution is strictly increasing in the endowment.
We prove that it is optimal for the social planner to set the last prize equal
to zero, but otherwise total expected contribution is invariant to the prize
structure. Finally, we show that private provision via a contest
Pareto-dominates public provision and is higher than the
total contribution raised through a lottery.
JEL Classifications:
D44; H41
Keywords: Contests;
Public Goods; Prizes.
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