The Strategic Advantage of Being Poor: Private and Public Provision of Public Goods

When people know that a public good is to be privately provided in the future, economic behavior may change in periods before the one with the private provision game. Individuals have a distortionary incentive to reduce their disposable income so as to shift the burden of provision to others. The incentive is eliminated if the government provides a sufficient amount of the public good. In a second-best world, private provision of public goods has been claimed to be a reasonably good alternative to public provision. This claim needs to be reconsidered in light of these results. Copyright 1994 by The London School of Economics and Political Science.