Public subscription and private contributions

Consider a situation in which individuals post their private contributions for the financing of an indivisible public project. If their valuations for the project are private information, an efficient outcome cannot be guaranteed by just one shot of this procedure (indeed, this is also the case for any one-shot procedure that is individually rational). We focus, therefore, on the dynamic mechanism in which the described procedure is repeated indefinitely, only stopping when the project can be ensured to be inefficient. Under alternative assumptions on the type space, a unique symmetric Perfect Bayesian equilibrium is shown to exist if contributions are restricted to just two possible levels (say, some pre-specified positive contribution or nothing at all). We also show that, except for a limit case, the right decision is eventually reached along this equilibrium, although generally after some (costly but bounded) delay.I have benefited from helpful comments by A. Koffman, M. Perry, L. Corchón, C. Herrero, P. Chander and Francisco Marhuenda. Special mention deserves an anonymous referee whose careful reading of the paper improved it very significantly. The usual caveat applies. I also acknowledge financial support from the Spanish Ministry of Education, CICYT project no. PS90-0156.