What is it about?
Imagine this problem. Cities A, B, and C can jointly build a garbage incinerator that benefits all three. It can only be built in City C, but it is the one that benefits the least. This is a noxious good: it brings global benefits, but locally harms those who provide it. And providing them is complicated. The following rules help provision: each city decides how much it is going to contribute for each unit of the project, and what is the maximum size of the project it would support. These rules are helpful for city C, because it can ask for money instead of contributing, and it can limit the maximum size of the project it accepts. We tested whether people are able to reach this agreement, and the results are mixed. When participants can chat, they do it, but cities A and B get most of the profits (they don't compensate C enough).
Photo by Hennie Stander on Unsplash
Why is it important?
Projects where everyone benefits, except its host, typically go through popular consultations that most of the time block their provision. A set of rules that allow direct compensation can prevent this gridlock.
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This page is a summary of: A mechanism requesting prices and quantities may increase the provision of heterogeneous public goods, Experimental Economics, June 2023, Springer Science + Business Media, DOI: 10.1007/s10683-023-09806-w.
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