Voluntary Provision of Public Goods and Administrative Costs

Abstract

This article considers voluntary provision of public goods in the presence of administrative costs. Government collects taxes and provides grants to a charity. Using government grants and private donations, the charity provides a public good. Administrative costs are paid twice for the government and for the charity in the case of taxes, and less of a one dollar tax goes toward the public good than from a one dollar donation. Donations are thus more efficient in terms of administrative costs than taxes. Donors then wish to donate more than in the standard model without administrative costs, and donors decrease their donations less than one dollar in response to a one-dollar increase in taxes. This partial crowding out caused by administrative costs helps explain the coexistence of the public provision and private provision of public goods in a number of contexts.