Working Paper: NBER ID: w13643
Authors: Matthew J. Kotchen
Abstract: This paper examines voluntary provision of a public good that is motivated, in part, to compensate for other activities that diminish the public good. Markets for environmental offsets, such as those that promote carbon neutrality to minimize the impact of climate change, provide an increasingly salient example. An important result, related to one shown previously, is that mean donations to the public good do not converge to zero as the economy grows large. Other results are new and comparable to those from the standard model of a privately provided public good. The Nash equilibrium is solved explicitly to show how individual direct donations and net contributions depend on wealth and heterogenous preferences. Comparative static analysis demonstrates how the level of the public good and social welfare depend on the technology, individual wealth, and an initial level of the public good. Application of the model in an environmental context establishes a starting point for understanding and making predictions about markets such as those for carbon offsets.
Keywords: public goods; environmental offsets; voluntary provision; negative externalities
JEL Codes: H0; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| individual's decision to provide public goods (H40) | individual's awareness of the adverse effects of their consumption on public goods (D62) |
| individual's awareness of the adverse effects of their consumption on public goods (D62) | public goods (e.g., carbon offsets) (H41) |
| individual wealth (D31) | direct donations and net contributions to public goods (H49) |
| technological advancements (O33) | social welfare (I38) |
| size of the economy (E20) | equilibrium level of public goods (H49) |