Three Essays in Public Economics: Theory and Experiments

Abstract

This thesis is composed of three chapters, which can be read independently. In the first chapter we explore distributive justice and perception of fairness using survey data from freshmen and senior students of economics and sociology. We analyse the impact of context and education on their preferences over a hypothetical distribution of resources between individuals which presents a trade off between efficiency and equality. With context giving minimal information, economics students are less likely to favour equality; studying economics in‡fluences the preferences of the subjects, increasing this difference. However, when the same problem is inserted into a meaningful context, the difference disappears. Four distribution mechanisms are analysed: egalitarianism, maximin, utilitarianism and utilitarianism with a fl‡oor constraint. The second chapter 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. The third chapter investigates fund-raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods, under the assumptions of income heterogeneity and incomplete information about income levels. We compare experimentally the performance of a lottery, an all-pay auction and a benchmark voluntary contribution mechanism. We find that prize-based mechanisms perform better than voluntary contribution in terms of public good provision after accounting for the cost of the prize. Comparing the prize-based mechanisms, total contributions are significantly higher in the lottery than in the all-pay auction. Focusing on individual income types, the lottery outperforms voluntary contributions and the all-pay auction throughout the income distribution.