A Conjectural Equilibrium Model for Public Goods: Dynamics and Policy Implications

ABSTRACT

We provide a dynamic conjectural equilibrium model where, at each date, heterogeneous and uncertain individuals decide whether to contribute or not to a public good. The model frames the contribution problem within a novel perspective, keeping various classical public good issues together. The results show that a unique conjectural equilibrium exists for given structural parameters; however, it is compatible with an infinity of possible equilibrium conjectures. Various policies can be used to increase the provision of the good, including (i) the enlargement of the exogenous provision of public goods, (ii) a fight against corruption and inefficiencies in the public sector, (iii) positive (negative) incentives to contribute (or not contribute), and (iv) actions supporting social capital. However, significant dynamical effects must be considered: the interaction between uncertainty and the conjectures makes any given policy differ in both impact and feasibility, since the system might eventually stop at a position different from the projected one. This can help explain the varied observable impacts of the same policy across different real‐world contexts. Nevertheless, policies (iii) and (iv) proved to be effective and more feasible.