Compensating for Public Harms: Why Public Goods Are Preferred to Money

Abstract

This paper provides evidence that public goods represent a more acceptable response to public harms than monetary compensation. We demonstrate a preference for public goods over monetary compensation, in part because receipt of public goods may limit the sense of guilt or bribery from accepting compensation for the injury. More surprising, this preference for public goods over money in the presence of a harm remains in a free-market choice where guilt is not an issue. It appears that public goods psychologically mitigate or balance public harms in a way that makes them more valuable in the presence of public harms. (JEL Q2)