Public Sector Crowding Out of Private Provision of Public Goods: the Influence of Differences in Production Costs

Abstract

This article introduces differentials in the production costs in the public and private sectors to models of public and private provision of public goods. The result of this exercise is to show that imperfect crowding out of private provision by public provision may occur even when the contributors are perfectly altruistic. Moreover, contrary to Andreoni's assertion that impure altruism is sufficient for less than perfect crowding out, the results of this analysis demonstrate that perfect crowding out is possible even when altruism is impure. Finally, the analysis shows that taxation of nondonors or taxation in excess of voluntary contributions is not sufficient to ensure that the public provision increases the total supply of the public good.