Global Public Goods and Coalition Formation under Matching Mechanisms

Matching mechanisms have been proposed to mitigate underprovision of public goods in voluntary contribution models. This paper investigates coalition formation under matching mechanisms with multiple players who have the same preference but different incomes. Given income heterogeneity within a certain range, there always exist small matching rates which make all members in the coalition better off. However, given other players staying in the coalition, players have incentives to take free rides and thus the matching coalition does not exist. If players value their reputation, they would stay in the coalition when the gain of free riding is lower than the reputation loss. Due to heterogeneity, the matching coalition faces trade-off between matching depth and breadth. The policy implication is that the matching rate can be flexibly set to compromise between cooperation depth and breadth and, more importantly, it may achieve Pareto-improving outcomes while avoiding international side payments.