Public Good Provision with a Governor

TL;DR

This paper analyzes a public good game involving citizens and a Governor, exploring how penalties, audits, and reputation influence contribution levels and public good provision, with a comprehensive equilibrium characterization.

Contribution

It provides a full characterization of symmetric subgame perfect equilibria in a public good game with corruption and reputation effects, including pure and mixed strategies.

Findings

Equilibria range from free-riding to full contribution.

Mixed-strategy equilibria are rare and parameter-dependent.

Reputational concerns can sustain contribution despite embezzlement incentives.

Abstract

We study a public good game with N citizens and a Governor who allocates resources from a common fund. Citizens may voluntarily contribute or be compelled to do so if audited, in which case shirkers face a penalty. The Governor decides how much of the fund to devote to public good provision, with the remainder embezzled. Crucially, the Governor's utility combines material payoffs from embezzlement with belief-dependent reputational concerns. We fully characterize the symmetric subgame perfect equilibria (SSPE) of the game. The model always admits at least one pure-strategy equilibrium, ranging from universal free-riding with complete embezzlement to full contribution with efficient provision. Mixed-strategy equilibria exist only in a narrow region of parameter values and may involve multiple equilibria. Our analysis highlights the roles of penalties, audits, and reputational incentives in sustaining contribution and provision, thereby linking public good provision with the broader literature on corruption, embezzlement, and psychological game theory.