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Endogenous network formation in local public goods: An experimental analysis

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  • Chen, Ying
  • Lane, Tom
  • McDonald, Stuart

Abstract

We experimentally explore public good production levels and the endogenous formation of network structures to facilitate output sharing among agents with heterogeneous production costs and consumption valuations. Results corroborate the key theoretical insights of Kinateder and Merlino (2017) characterizing how agents form core-periphery networks. However, subjects often produce more and form denser networks than predicted, which sometimes reduces efficiency. There is some tendency for behaviour to converge towards the theoretical equilibrium over repeated play. Our results help us understand the emergence of the law of the few in real-world networks, and suggest it is driven by endogenous sorting of heterogeneous agents.

Suggested Citation

  • Chen, Ying & Lane, Tom & McDonald, Stuart, 2025. "Endogenous network formation in local public goods: An experimental analysis," Games and Economic Behavior, Elsevier, vol. 150(C), pages 198-214.
    • Handle: RePEc:eee:gamebe:v:150:y:2025:i:c:p:198-214
    DOI: 10.1016/j.geb.2024.10.004
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    More about this item

    Keywords

    Local public goods; Network formation; Experiment; Heterogeneity;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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