Agreeing on public goods or bads

Without regulation or agreement, public goods are underprovided and public bads are overprovided. Both problems are usually seen as flip sides of the same coin. In this paper we examine a situation where a public good is good for some agents but bad for others, and this preference is endogenous to the provisioning level of the good. We allow agents to form a coalition to coordinate provision. Compared with games with only goods (or only bads) we find larger coalitions in equilibrium. Specifically, we analyze a game with quadratic benefit- and cost functions and we find the grand coalition to be stable except for situations where agents have identical or almost identical characteristics. The main driving force of coalition stability is that cooperation avoids a wasteful contest between agents pulling the provision level in opposite directions. We show that, in equilibrium, wasteful contest is confined to a narrow range of the parameter space of our game. This result connects the literatures on public goods and contests.