DP8607 Private Provision of Public Goods and Information Diffusion in Social Groups

Author(s): Kimberley Ann Scharf

Publication Date: October 2011

Keyword(s): private provision of public goods , social learning

JEL(s): D6 , D7 , H1 , L3

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP8607.asp.asp

We describe a model of fundraising in social groups, where private information about quality of provision is transmitted by social proximity. Individuals engage in voluntary provision of a pure collective good that is consumed by both neighbors and non-neighbors. We show that, unlike in the case of private goods, better informed individuals face positive incentives to incur a cost to share information with their neighbors. These incentives are stronger, and provision of the pure public good greater, the smaller are individuals’ social neighborhoods.