Optimal Altruism in Public Good Provision

 

Date: 2014-01-29
By: Robert Hahn
Robert Ritz
URL: http://d.repec.org/n?u=RePEc:cam:camdae:1403&r=net
We present a model of altruistically-minded-yet rational-players contributing to a public good. A key feature is the tension between altruism and “crowding-out" effects (players’ efforts are strategic substitutes). We find that more altruistic behaviour can raise or reduce welfare, depending on the fine details of the environment. It is almost always optimal for a player to act more selfishly than her true preference. We discuss applications to a range of public good problems, including global climate policy. Our results highlight that it may be difficult to infer social preferences from observed behaviour.
Keywords: Altruism, climate policy, crowding out, public goods
JEL: D03 H23 H41 Q58
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