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Equilibrium Selection and Public Good Provision

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  • David P. Myatt
  • Chris Wallace

Abstract

Collective action problems arise in a variety of situations. The economic theory of public good provision raises a number of important questions. Who contributes to the public good, and who free rides? How might a social planner exploit the interdependence of decision-making to encourage contributions? Under what conditions will such actions result in public good provision? Using a simple game theoretic framework and recent results from the study of equilibrium selection, this paper attempts to answer some of these questions. Under reasonable assumptions of asymmetry and less than complete information, the more efficient agent will contribute. Contributions can be elicited by `integrating` the production process when agents are sufficiently emph{optimistic} about the success of the project. When this is not the case, the social planner may be better off `separating` the project so that individual contributions are independent of each other.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 103.

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Date of creation: 01 Jun 2002
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Handle: RePEc:oxf:wpaper:103

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Related research

Keywords: global games; public good provision; separation and integration;

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References

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  1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  2. Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
  3. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  4. Eduardo Ley, 1995. "On the Private Provision of Public Goods: A Diagrammatic Exposition," Public Economics 9503001, EconWPA, revised 15 Jul 1995.
  5. Carlsson, H. & Damme, E.E.C. van, 1993. "Global games and equilibrium selection," Open Access publications from Tilburg University urn:nbn:nl:ui:12-154416, Tilburg University.
  6. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  7. Leslie M. Marx & Steven A. Matthews, . ""Dynamic Voluntary Contribution to a Public Project''," CARESS Working Papres 99-01, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  8. Justin Pappas Johnson, 2002. "Open Source Software: Private Provision of a Public Good," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 637-662, December.
  9. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
  10. Varian, Hal R., 1994. "Sequential contributions to public goods," Journal of Public Economics, Elsevier, vol. 53(2), pages 165-186, February.
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Cited by:
  1. Bitzer, Jürgen & Schrettl, Wolfram & Schröder, Philipp J.H., 2006. "Intrinsic Motivation versus Signaling in Open Source Software Development," Working Papers 06-7, University of Aarhus, Aarhus School of Business, Department of Economics.
  2. Sääskilahti, Pekka, 2006. "Buying Decision Coordination and Monopoly Pricing of Network Goods," MPRA Paper 5106, University Library of Munich, Germany.
  3. David P. Myatt & Chris Wallace, 2003. "Evolution in Teams," Economics Series Working Papers 177, University of Oxford, Department of Economics.

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