Relying upon voluntary contributions for public goods provision generally results in the under-provision of the good relative to first-best levels due to the free-rider problem. Taxation/allocation schemes have been designed which solve the free-rider problem, but are too complex to implement. Lotteries and auctions are frequently used to fund public goods, as they diminish the incentive to free-ride. This thesis examines the use of a tontine to finance public goods. I will demonstrate that the tontine, a life-contingent annuity with survivorship benefits, maintains many of the properties of the single fixed-prize lottery. Additionally, I propose that the tontine outperforms…
Author: Price, Shannon
Source: University of Maryland
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