Dynamic public good provision under time preference heterogeneity: theory and applications to philanthropy
Philip Trammell (Global Priorities Institute and Department of Economics, University of Oxford)
GPI Working Paper No. 9-2021
I explore the implications of time preference heterogeneity for public good funding. I find that the assumption of a common discount rate is knife-edge: allowing for time preference heterogeneity produces substantially different funding behavior in equilibrium. In particular I find that, across a variety of circumstances, patient funders invest, rather than spend, the entirety of their resources for substantial lengths of time in equilibrium. I also find that the implications of this departure from the common-discount-rate case are economically significant, in that the patient payoff to spending in equilibrium, relative to that of spending according to an intermediate time preference rate, can grow arbitrarily large as a patient funder’s share of initial funding goes to zero. Finally, I discuss applications of these results to the timing of philanthropic spending, and to patient philanthropists’ willingness to pay to avoid legal disbursement minima.
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