A Case for Bundling Public Goods Contributions?∗

We extend the model of voluntary contributions to multiple public goods by allowing for bundling of the public goods. Specifically, we study the case where agents contribute into a common pool which is then allocated towards the financing of two pure public goods. We explore the wel-fare implications of allowing for such bundling vis-a-vis a separate contributions scheme. We show that when agents have homogeneous preferences, they cannot be made better off with a bundling scheme. On the contrary, in the generic case when agents are heterogenous in their incomes and preferences, bundling may increase joint welfare compared to a separate contribution scheme, in particular for higher income inequality among the agents. It is interesting to note that the welfare improvement occurs despite a decrease in total contributions. Our findings have implications for the design of charitable institutions and international aid agencies