The Free Rider Problem: a Dynamic Analysis
AbstractWe 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17926.
Date of creation: Mar 2012
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Find related papers by JEL classification:
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
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- NEP-ALL-2012-04-03 (All new papers)
- NEP-DGE-2012-04-03 (Dynamic General Equilibrium)
- NEP-GTH-2012-04-03 (Game Theory)
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