Journal of Economic Behavior & Organization

Volume 204, December 2022, Pages 680-698

Efficient public good provision by lotteries with nonlinear pricing

Tracy Xiao Liu ^a,      Jingfeng Lu ^b ,    Zhewei Wang ^c          

a Department of Economics, School of Economics and Management, Tsinghua University, 30 ShuangQing Rd, Beijing 100084, China

b Department of Economics, National University of Singapore, 10 Kent Ridge Crescent, 119260, Singapore

c School of Economics, Shandong University, 27 Shanda Nanlu, Jinan 250100, China

In this paper, we introduce nonlinear pricing of lottery tickets to the mechanism of Morgan (2000), in which a lottery is used to finance the public good. In a model with symmetric agents, we   find that incorporating this instrument fully achieves the efficient provision of public good when each agent’s initial wealth is sufficiently high. In a model with two asymmetric agents, there    exists a nonlinear lottery mechanism that induces efficient public good provision provided that agents are not too heterogenous. Intuitively, the proposed nonlinear pricing rule leads to a            decreasing marginal cost for ticket purchase, which provides stronger incentives for agents to make contributions, compared with Morgan (2000).