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Free Riding in Networks

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  • Markus Kinateder
  • Luca Paolo Merlino

Abstract

Players allocate their budget to links, a local public good and a private good. A player links to free ride on others' public good provision. We derive sufficient conditions for the existence of a Nash equilibrium. In equilibrium, large contributors link to each other, while others link to them. Poorer players can be larger contributors if linking costs are sufficiently high. In large societies, free riding reduces inequality only in networks in which it is initially low; otherwise, richer players benefit more, as they can afford more links. Finally, we study the policy implications, deriving income redistribution that increases welfare and personalized prices that implement the efficient solution.

Suggested Citation

  • Markus Kinateder & Luca Paolo Merlino, 2021. "Free Riding in Networks," Papers 2110.11651, arXiv.org.
    • Handle: RePEc:arx:papers:2110.11651
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    References listed on IDEAS

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    Cited by:

    1. Ugo Bolletta & Luca Paolo Merlino, 2022. "Marriage Through Friends," Dynamic Games and Applications, Springer, vol. 12(4), pages 1046-1066, December.
    2. Patrick Allmis & Luca Paolo Merlino, 2023. "Homophily and Specialization in Networks," Papers 2312.00457, arXiv.org.
    3. Markus Kinateder & Luca Paolo Merlino, 2021. "The Evolution of Networks and Local Public Good Provision: A Potential Approach," Games, MDPI, vol. 12(3), pages 1-12, July.
    4. Olaizola, Norma & Valenciano, Federico, 2024. "Core–periphery and nested networks emerging from a simple model of network formation," Mathematical Social Sciences, Elsevier, vol. 129(C), pages 42-51.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D00 - Microeconomics - - General - - - General
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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