Heterogeneity, returns to scale, and collective action

Author: Karaivanov, Alexander

Source: Canadian Journal of Economics, Volume 42, Number 2, May / mai 2009 , pp. 771-807(37)

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Abstract:

Abstract.

I analyze the effects of resource inequality and valuation heterogeneity on the provision of public goods with increasing or decreasing returns to scale in production. The existing literature typically takes the agents' characteristics as given and known to the researcher. In contrast, this paper compares collective action provision across groups of agents with resources and valuations for the public good drawn from different known joint distributions. Specifically, I characterize the expected equilibrium public good level as function of various distributional properties and moments. A resource-valuation distribution that first-order stochastically dominates another distribution always results in higher expected public good provision level, independent of the production technology. With decreasing returns to scale in the public good production, higher resource inequality results in higher expected provision. With increasing returns the same result holds when the mean resource level is relatively low, but expected provision decreases in inequality when the mean resource level is high. A parallel result holds for agents' valuations.

Keywords: H41; D61

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1540-5982.2009.01527.x

Affiliations: 1: Department of Economics, Simon Fraser University

Publication date: 2009-05-01