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A Model of Inequality Aversion and Private Provision of Public Goods

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Published/Copyright: March 11, 2020

Abstract

I develop a model of inequality aversion and public goods that allows the marginal rate of substitution to be variable. As a theoretical foundation, utility function of the standard public goods model is nested in the Fehr-Schmidt model. An individual’s contribution function for a public good is derived by solving the problem of kinky preference and examining both interior and corner solutions. Results show that the derived contribution function is not monotonic with respect to the other individual’s provision. Thus, the model can be used to explain empirical evidence for the effect of social comparison on public-good provision.

Acknowledgements

I am grateful for the comments and encouragement from anonymous referees, Nguyen Ngoc Mai, and Klaus M. Schmidt, as well as for the comments from participants at the 2017 International Workshop on Social Preferences and Environmental and Resource Economics at the University of Manchester. This research project was supported by JSPS KAKENHI, grant number 17K18343 (Funder Id: http://dx.doi.org/10.13039/501100001691).

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Supplementary Material

The online version of this article offers supplementary material (DOI:https://doi.org/10.1515/bejte-2019-0066).


Published Online: 2020-03-11

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