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Contributing or Free-Riding? Voluntary Participation in a Public Good Economy

  • Taiji Furusawa

    (Hitotsubashi University)

  • Hideo Konishi

    ()

    (Boston College)

We consider a (pure) public goods provision problem with voluntary participation in a quasi-linear economy. We propose a new hybrid solution concept, the free-riding-proof core (FRP-Core), which endogenously determine a contribution group, public good provision level, and its cost-sharing. The definition of the FRP-Core is based on credibility of coalitional deviations. The FRP-Core is always nonempty in public good economy but does not usually achieve global efficiency. The FRP-Core has support from both cooperative and noncooperative games. In particular, it is equivalent to the set of perfectly coalition-proof Nash equilibrium (Bernheim, Peleg and Whinston, 1987 JET) of a dynamic game with participation decision followed by a common agency game. We illustrate the properties of the FRP-Core with an example. We also show that the equilibrium level of public good shrinks to zero as the economy is replicated.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 681.

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Date of creation: 11 Feb 2008
Date of revision: 04 Aug 2010
Publication status: published, Theoretical Economics 6, 219-256, 2011.
Handle: RePEc:boc:bocoec:681
Note: Previously circulated as "Contributing or Free-Riding? A Theory of Endogenous Lobby Formation"
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  1. Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, vol. 45(4), pages 783-809, May.
  2. Laussel, Didier & Le Breton, Michel, 1998. "Efficient Private Production of Public Goods under Common Agency," Games and Economic Behavior, Elsevier, vol. 25(2), pages 194-218, November.
  3. Palfrey, Thomas R. & Rosenthal, Howard, 1984. "Participation and the provision of discrete public goods: a strategic analysis," Journal of Public Economics, Elsevier, vol. 24(2), pages 171-193, July.
  4. Milleron, Jean-Claude, 1972. "Theory of value with public goods: A survey article," Journal of Economic Theory, Elsevier, vol. 5(3), pages 419-477, December.
  5. Bombardini, Matilde, 2008. "Firm heterogeneity and lobby participation," Journal of International Economics, Elsevier, vol. 75(2), pages 329-348, July.
  6. Walker, Mark, 1981. "A Simple Incentive Compatible Scheme for Attaining Lindahl Allocations," Econometrica, Econometric Society, vol. 49(1), pages 65-71, January.
  7. Devashish Mitra, 1999. "Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination," American Economic Review, American Economic Association, vol. 89(5), pages 1116-1134, December.
  8. Maruta, Toshimasa & Okada, Akira, 2005. "Group Formation and Heterogeneity in Collective Action Games," Discussion Papers 2005-07, Graduate School of Economics, Hitotsubashi University.
  9. KONISHI, Hideo & LE BRETON, Michel & WEBER, Shlomo, . "On coalition-proof Nash equilibria in common agency games," CORE Discussion Papers RP 1383, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Hurwicz, L, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 217-25, April.
  11. Paul Healy, 2010. "Equilibrium participation in public goods allocations," Review of Economic Design, Springer, vol. 14(1), pages 27-50, March.
  12. Conley John P., 1994. "Convergence Theorems on the Core of a Public Goods Economy: Sufficient Conditions," Journal of Economic Theory, Elsevier, vol. 62(1), pages 161-185, February.
  13. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  14. Debraj Ray & Rajiv Vohra, 2001. "Coalitional Power and Public Goods," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1355-1384, December.
  15. Ray, Debraj, 2007. "A Game-Theoretic Perspective on Coalition Formation," OUP Catalogue, Oxford University Press, number 9780199207954.
  16. 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.
  17. Saijo, Tatsuyoshi & Yamato, Takehiko, 1999. "A Voluntary Participation Game with a Non-excludable Public Good," Journal of Economic Theory, Elsevier, vol. 84(2), pages 227-242, February.
  18. Laussel, Didier & Le Breton, Michel, 2001. "Conflict and Cooperation: The Structure of Equilibrium Payoffs in Common Agency," Journal of Economic Theory, Elsevier, vol. 100(1), pages 93-128, September.
  19. Le Breton, Michel & Salanie, Francois, 2003. "Lobbying under political uncertainty," Journal of Public Economics, Elsevier, vol. 87(12), pages 2589-2610, December.
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