Finitely Repeated Voluntary Provision of a Public Good

Abstract

This paper theoretically explores the voluntary provision of a public good in a finitely repeated setting. Agents' utility is the sum of their monetary earnings and a non-material psychological component that can be interpreted as a taste for efficiency and/or fairness. An arbitrarily small degree of such non-material payoffs can generate large contributions in the repeated game, even if the incentive to free-ride on others' contributions calls for negligible public good provision in the static game. The payoff dominant symmetric perfect equilibrium path is characterized by a sharp decline in contributions toward the end of the game. Several comparative results regarding group size and technology are consistent with laboratory data obtained by Isaac and Walker (1988) and Isaac et al. (1994). The model also predicts the puzzling restart effect observed by Andreoni (1988) in an experimental study. It is therefore possible to reconcile previous experimental observations with fully rational behavior, using only mild assumptions on preferences and the standard tools of repeated games.

Keywords: Public goods, voluntary contribution mechanism, repeated games, folk theorem, social preferences

JEL Classification: C73, C93, D64, H41