Private Investment of a Public Project? A Multiperiod Anaylsis

We formulate a dynamic model of voluntary investment in a public project. We distinguish two alternative scenarios. One in which private agents have full knowledge about the accumulated aggregated contributions and one in which each agent only has knowledge about his personal contributions. For both scenarios we investigate whether or not the public project will be efficiently funded by the agents. It truns out that in the case where agents do not know the aggregated cummulative contributions, there are no private contributions and the public good will not be provided. In the case if agents know the cummulated aggregated contributions there exists an equilibrium in which agents will efficiently contribute to the public project, i.e. they are at least as well off with the private contributions as they are if the project is financed publicly. JEL Classification: C73, D92, H41