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Asymmetric Contributions from Identical Agents in a Local Interaction Model

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Abstract

The main findings of the theory on the private provision of public goods under the assumptions of identical individuals and normality of both the public good and private consumption are that: 1) there exists a unique Nash equilibrium pattern of contributions in which everybody contributes the same amount; 2) this pattern is stable. We show that these findings no longer hold in a context characterized by local interaction. Individuals are distributed around a circle and enjoy the level of public good contributed in their neighborhood. Each individual belongs to a neighborhood defined as the first k individuals on her right, the first k individuals on her left, and herself. In this context, it is always possible to find preferences satisfying the assumption of normality such that the symmetric Nash equilibrium is unstable, and there exists at least one asymmetric Nash equilibrium which is locally stable.

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File URL: ftp://ftp.unibocconi.it/pub/RePEc/slp/papers/islawp24.pdf
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Paper provided by ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy in its series ISLA Working Papers with number 24.

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Length: 23 pages
Date of creation: Aug 2006
Date of revision: Mar 2007
Handle: RePEc:slp:islawp:islawp24

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Keywords: Local Interaction; Public Goods; Nash Equilibria.;

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  1. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
  2. Bilodeau, M. & Gravel, N., 1997. "Voluntary Provision of a Public Good and Individual Morality," Papers 9731, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  3. Cornes, Richard, 1979. "External Effects : An Alternative Formulation," The Warwick Economics Research Paper Series (TWERPS) 159, University of Warwick, Department of Economics.
  4. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
  5. Diamond, Peter, 2006. "Optimal tax treatment of private contributions for public goods with and without warm glow preferences," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 897-919, May.
  6. Bloch, Francis & Zenginobuz, Unal, 2004. "The Effect of Spillovers on the Provision of Local Public Goods," MPRA Paper 186, University Library of Munich, Germany, revised 05 Oct 2006.
  7. Scotchmer, Suzanne, 2002. "Local public goods and clubs," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 29, pages 1997-2042 Elsevier.
  8. Sandmo, Agnar, 1980. "Anomaly and Stability in the Theory of Externalities," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 799-807, June.
  9. Cornes, Richard & Sandler, Todd, 1984. "Easy Riders, Joint Production, and Public Goods," Economic Journal, Royal Economic Society, vol. 94(375), pages 580-98, September.
  10. Bloch, Francis & Zenginobuz, E. Unal, 2006. "Tiebout equilibria in local public good economies with spillovers," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1745-1763, September.
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