Private Provision of Public Goods via Crowdfunding

December 06, 2016 by Robert Chovanculiak, Marek Hudik

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Private provision of public goods is typically associated with three main problems: (1) high organization costs, (2) the assurance problem, and (3) the free-rider problem. We argue that technologies which enable crowdfunding (the method of funding projects by raising small amounts of money from a large number of people via the internet), have made the overall conditions for private provision of public goods more favorable: these technologies lowered the organization costs and enabled to employ more efficient mechanisms which reduce the assurance and free-rider problems. It follows that if the reason for government provision of public goods is higher efficiency as suggested by the standard theory, then with the emergence of crowdfunding we should observe a decline of the government role in this area.