Public Good Provision in Large Groups: Olson Was (Almost Always) Right!

Abstract

It is well established that the provision of a pure public good is increasing in group size if the good is normal. What I show is that if the good exhibits even a small degree of rivalry, then the individual level of consumption of the public good falls to 0 in a large group. Thus, a strong version of the Olson hypothesis applies to anything other than an pure public good. Technically, what is important is the nature of the public good as the group size grows large. If the good approaches a pure public good in the limit, we will not obtain a strong version of the Olson hypothesis, but if the commodity exhibits any degree of rivalry in the limit, then we do obtain a strong version of his hypothesis.

Keywords: Public Goods, Group Size, Olson Hypothesis

JEL Classification: D7, H4, C72