Agreeing on public goods or bads

Abstract

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, depending on the provisioning level of the good. We allow agents to form a coalition to coordinate this provision. Our results show that, compared to games with only goods (or only bads), larger coalitions form in equilibrium. For a game specification with quadratic benefit- and cost functions, we find the grand coalition to be stable except when agents have identical or almost identical characteristics. The primary driver of coalition stability is the avoidance of a wasteful contest between agents pulling the provision level in opposing directions. In equilibrium, such wasteful contests are confined to a narrow range within the parameter space. This result connects the literatures on public goods and contests.