PRIVATELY PROVIDED PUBLIC GOODS IN A DYNAMIC ECONOMY

Laura Marsiliani
Thomas I. Renström

This paper investigates voluntary public goods provision in a dynamic economy, where individuals can save (accumulate capital). It is shown that over time, in both the open-loop and the feedback Nash equilibria, all individuals eventually become contributors (the poorer individuals accumulate wealth to catch up with the rich). In steady state, larger economies have more contributors, but each contributor contributes less if private consumption is normal. If public consumption is normal, then total public goods increase with population size in the open- loop equilibrium, but not necessarily in the feedback equilibrium. If both private and public goods are normal, then the open-loop equilibrium exhibits greater steady-state public provision than the feedback equilibrium. If private consumption is inferior the opposite is true.

Keywords: Private provision, public goods, dynamic, intertemporal, differential game.

JEL classification: C73, D91, E21, H40.

Correspondence to:

L. Marsiliani, Department of Economics and Finance, Durham University Business School, Mill Hill Lane, Durham, DH1 3LB, UK.
Tel: +44-(0)191-334 6363.
Email: [email protected] Web: http://www.dur.ac.uk/laura.marsiliani/

T.I. Renström, Department of Economics and Finance, Durham University Business School, Mill Hill Lane, Durham, DH1 3LB, UK.
Tel: +44-(0)191-334 6369.
Email: [email protected] Web: http://www.dur.ac.uk/t.i.renstrom/

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