Efficient public good provision by lotteries with nonlinear pricing

In this paper, we introduce nonlinear pricing of lottery tickets to the mechanism of Morgan (2000), in which a lottery is used to finance the public good. In a model with n symmetric agents, we find that incorporating this instrument fully achieves the efficient provision of public good when each agent’s initial wealth is sufficiently high. In a model with two asymmetric agents, there exists a nonlinear lottery mechanism that induces efficient public good provision provided that agents are not too heterogenous. Intuitively, the proposed nonlinear pricing rule leads to a decreasing marginal cost for ticket purchase, which provides stronger incentives for agents to make contributions, compared with Morgan (2000).