Coordination and free-riding problems in the provision of multiple public goods

Abstract

This study considers the twin problems of free riding and coordination failure, which are prevalent in the provision of multiple public goods with diminishing marginal returns. Specifically, we consider a game with two public goods, each of which has an upper bound of effective contribution. Any costly contributions beyond the upper bound are wasted. In this game, the payoff-sum maximizing Pareto-optimal outcome requires the sum of contributions by the group members to be equal to the upper bound of each public good, resulting in a coordination problem regarding who contributes to which public good. We theoretically and experimentally examine whether the provision of information on the values of the upper bounds helps overcome these problems and improves efficiency. Theoretical analysis predicts that this information will improve efficiency because it prompts efficiency-concerned individuals to match the upper bounds of each public good in equilibrium. The experimental results show countervailing effects of providing information; namely, it improves coordination but exacerbates the free-riding problem.