Vote with Their Donations : An Explanation About Crowding-In of Government Provision of Public Good

This paper considers a mechanism where provider of public good reflects donor's preference on public good. When asking individuals and private companies to contribute for certain public good, it is widely known that the total contributions result in under-provision. Among a lot of countermeasures for this problem, some fundraisers adopt a measure to reflect large donors' preference on the characteristics of public good. In such a case, private contribution is enhanced because there is additional incentive to donate. We formalized such a measure theoretically and proved that this measure enhances private contributions. Moreover, we find that government direct subsidy may not only crowd-out but also even crowd-in private contribution under this framework. If fundraiser reflects the major donors' preference, the influence of one's donation is leveraged by government direct provision. If this effect dominates the innate crowding-out effect, government direct subsidy may enhance private contribution. This mechanism is a novel explanation to explain both crowding-out and crowding-in under an identical framework