Assurance Payments for Multi-Unit Public Goods Provision: Experiments Motivated by Ecosystem Service Markets
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In provision point mechanism, the cost threshold for provision introduces incentives for individuals to contribute toward the public good and, in general, the Pareto efficient outcome is a subset of equilibrium outcomes. However, the threshold cannot eliminate the pure free-rider equilibrium unless refinements are used. In this paper, we examine a set of assurance payment schemes for multi-unit public good provision using individualized price auction (IPA). We find assurance payment significantly eliminates non-provision equilibria, and reduces the multiplicity of provision equilibria suffered by most discrete public good provision games, especially in a multi-unit setup. The assurance payments could be useful in establishing markets for a previously non-marketable good, and thus improve the efficiency regarding the provision of various types of public good currently funded only by government or through traditional non-profit donations.