Reciprocity: The Supply of Public Goods Through Voluntary Contributions

Abstract

A theory of the voluntary sector, in which production is financed out of voluntary contributions, is proposed, based on the assumption that most people view free-riding as morally wrong. Services provided by the voluntary sector are public goods, and it is very difficult to produce a satisfactory theory explaining how public goods come to be supplied through voluntary activity when many people are involved. The principle of reciprocity, however, can form the basis of such a theory. The implications of this principle are examined within a simple, general model of the voluntary sector. The special case in which all people have identical preferences and the production function has a simple linear form is considered, followed by the general case, where preferences may vary between people. A more concrete analysis is then made of what kind of behavior the theory of reciprocity predicts and how these predictions differ from those of other theories of nonselfish behavior.