Deciding for Others : Local Public Good Contributions with Intermediaries

Given the prevalence of local public goods, whose broader use is often limited by distance and borders, we propose a potential solution to the free-riding problem by having each participant/beneficiary delegate the public good contribution decision to a non-local intermediary who neither puts in own endowment into the public good nor benefits from it. Intermediaries make decisions under two compensation mechanisms where the incentives for the intermediary are either non-aligned (fixed) or aligned (variable) with those of the beneficiary. We find that the use of intermediaries, regardless of whether their compensation is aligned or not with that of the beneficiary, significantly increases contributions to the provision of the public good. We conclude that individuals behave differently when they (formally) make decisions for someone else even if their incentive structures are identical