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A competitive equilibrium for a warm-glow economy

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Abstract

The warm-glow model (Andreoni in J Political Econ 97:1447–1458, 1989; Econ J 100:464–477, 1990) of public goods provision has received widespread interest, yet surprisingly most attention has focused on the voluntary contribution equilibrium of the model, and only very little attention has been devoted to the competitive equilibrium. In this paper, we introduce the concept of competitive equilibrium for a warm-glow economy (henceforth, warm-glow equilibrium) and establish both existence and welfare properties. The warm-glow equilibrium concept may prove to be very useful to the normative and positive theory of public goods provision. First, it is a price-based mechanism achieving efficient outcomes. Second, not only could the warm-glow equilibria outcomes serve as a point of reference to measure free-riding and welfare loss but also, as suggested by Bernheim and Rangel (Behavioral Economics and Its Applications, 2007), in large economies they may be approximated by Walrasian equilibria outcomes.

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Authors and Affiliations

  1. School of Economics and Finance, Queen Mary University of London, Mile End Rd., London, E1 4NS, UK

    Nizar Allouch

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  1. Nizar Allouch
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Correspondence to Nizar Allouch.

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I thank Ted Bergstrom, Richard Cornes, Clive Fraser, Judith Payne, Herakles Polemarchakis, Bryony Reich, Mich Tvede, Chris Tyson, and seminar participants at Warwick, Cambridge, East Anglia, Copenhagen, CORE, Kent, Vanderbilt, Maastricht, PET 2008, SAET 2009, and York GEdays 2011 meetings for insightful comments. I am also very indebted to two anonymous referees and the editor Nicholas Yannelis for many valuable suggestions that substantially improved the paper. The hospitality of the University of Cambridge, Department of Economics is gratefully acknowledged.

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Allouch, N. A competitive equilibrium for a warm-glow economy. Econ Theory 53, 269–282 (2013). https://doi.org/10.1007/s00199-012-0689-z

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