The optimal subsidy for private giving to a public good increases as the number of people benefiting from the public good increases.

Question

Quizplus · Accepted Answer

When more people benefit from a public good, the positive externalities of these benefits spill over to a larger population. This means that individuals may not have the incentive to contribute to the public good because they can free-ride on the contributions of others. To counteract this, governments may provide subsidies to encourage private giving to the public good. The optimal subsidy increases as the number of beneficiaries increases because the positive externalities also increase, and more funds are needed to incentivize private contributions.

The Optimal Subsidy for Private Giving to a Public Good