Abstract: This study identifies a new channel through which government provision of public goods crowds out voluntary provision. Controlled laboratory experiments are used to identify how the possibility of government provision alters the likelihood of successful voluntary provision. Previous experiments on voluntary provision are studied in an environment where the alternative to voluntary provision is no provision at all. In this study, failed voluntary provision is met with backup government provision financed by mandatory taxes. Comparisons with baseline sessions in which subjects contribute toward a public good using a provision point mechanism with full refund allow for the identification and measurement of moral hazard. Results confirm the existence of moral hazard crowd-out of voluntary contributions due to this incentive structure. This type of crowding out adds to rather than replaces other crowding out channels that have been studied in the economic literature.
Keywords: Crowding out, moral hazard, public finance, experimental economics
JEL Codes: H11, H41, C90, C92
Download Paper: “Crowding Out in Public Goods with a Provision Point Technology”