Voluntary contributions to risky multilevel public goods with heterogeneous returns

This paper studies voluntary contributions to public goods in a multilevel government setting characterized by risky and heterogeneous marginal returns across groups. We develop a theoretical model in which individuals allocate resources between local and national public goods under risk and heterogeneous return distributions across groups. The analysis shows that heterogeneity in marginal returns activates inequality concerns, which operate as a form of effective risk aversion. As a result, heterogeneity introduces an endogenous risk cost that weakens contribution incentives relative to otherwise identical homogeneous settings, even when expected returns are high and identical across groups. If risk dispersion is greater at the national level, national contributions become more fragile; if it is greater locally, local contributions contract more; and when covariance across levels is high, risk may induce substitution between contribution levels.