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Subgame Consistent Cooperative Provision of Public Goods Under Accumulation and Payoff Uncertainties

In: Dynamic Games in Economics

Author

Listed:
  • David W. K. Yeung

    (Saint Petersburg State University
    Hong Kong Shue Yan University)

  • Leon A. Petrosyan

    (Saint Petersburg State University)

Abstract

The provision of public goods constitutes a classic case of market failure which calls for cooperative optimization. However, cooperation cannot be sustainable unless there is guarantee that the agreed-upon optimality principle can be maintained throughout the planning duration. This paper derives subgame consistent cooperative solutions for public goods provision by asymmetric agents in a discrete-time dynamic game framework with uncertainties in stock accumulation dynamics and future payoff structures. In particular, subgame consistency ensures that as the game proceeds agents are guided by the same optimality principle and hence they do not possess incentives to deviate from the previously adopted optimal behavior. A “payoff distribution procedure” leading to subgame-consistent solutions is derived and an illustration is presented. This is the first time that subgame consistent cooperative provision of public goods with uncertainties in stock dynamics and future payoffs is analyzed.

Suggested Citation

  • David W. K. Yeung & Leon A. Petrosyan, 2014. "Subgame Consistent Cooperative Provision of Public Goods Under Accumulation and Payoff Uncertainties," Dynamic Modeling and Econometrics in Economics and Finance, in: Josef Haunschmied & Vladimir M. Veliov & Stefan Wrzaczek (ed.), Dynamic Games in Economics, edition 127, pages 289-315, Springer.
    • Handle: RePEc:spr:dymchp:978-3-642-54248-0_13
    DOI: 10.1007/978-3-642-54248-0_13
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