Monopolistic Competition, Growth and Public Good Provision

In the standard model, provision of a pure public good is increasing in group size if it is a normal good. I develop a model of public good provision in which private goods are supplied in a monopolistically competitive market. In this model, group size corresponds to population. I find that increases in population lead to reduced public good provision. The reason is quite simple: as population increases, the number of private goods available for consumption also increases. This raises the marginal utility of income and increases the opportunity cost of contributing to the public good. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.