Dynamic public good provision under time preference heterogeneity: Theory and applications to philanthropy

Abstract

I explore the implications of time preference heterogeneity for public good funding. I find that the assumption of a common discount rate, universal in the dynamic public good provision literature, is a knife- edge assumption: allowing for time preference heterogeneity produces substantially different funding behavior in equilibrium. In particu- lar I find that, across a variety of circumstances, patient funders in- vest, 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, rela- tive 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.