Working Paper: NBER ID: w17926
Authors: Marco Battaglini; Salvatore Nunnari; Thomas Palfrey
Abstract: We present a dynamic model of free riding in which n infinitely lived agents choose between private consumption and contributions to a durable public good g. We characterize the set of continuous Markov equilibria in economies with reversibility, where investments can be positive or negative; and in economies with irreversibility, where investments are non negative and g can only be reduced by depreciation. With reversibility, there is a continuum of equilibrium steady states: the highest equilibrium steady state of g is increasing in n, and the lowest is decreasing. With irreversibility, the set of equilibrium steady states converges to a unique point as depreciation converges to zero: the highest steady state possible with reversibility. In both cases, the highest steady state converges to the efficient steady state as agents become increasingly patient. In economies with reversibility there are always non-monotonic equilibria in which g converges to the steady state with damped oscillations; and there can be equilibria with no stable steady state, but a unique persistent limit cycle.
Keywords: Free rider problem; Dynamic analysis; Public goods; Equilibria
JEL Codes: D78; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of agents (n) (L85) | equilibrium steady states of public goods (g) (H49) |
| number of agents (n) (L85) | highest steady state of public goods (g) (H49) |
| number of agents (n) (L85) | lowest steady state of public goods (g) (H49) |
| agent investment behaviors (L85) | public good levels (H49) |
| investment behaviors (G41) | equilibrium steady states (C62) |
| irreversibility (D15) | unique equilibrium steady state (C62) |
| depreciation approaching zero (D25) | convergence to efficient steady state (C62) |
| agent patience (L85) | highest steady state of public goods (g) (H49) |
| number of agents (n) (L85) | non-monotonic equilibria (D59) |