Dynamic Cooperation in Local Public Goods Supply with Imperfect Monitoring
This paper develops a two-country model where each country invests in a local public good generating positive cross-countries externalities. In a repeated game setting where the level of public good depends on a non-observable effort by each country plus a random shock, we characterize the existence condition of a cut-off trigger strategy equilibrium inducing full cooperation. Moreover, we show that introducing a small positive correlation between the two country-specific shocks gives rise to a manipulation of information thereby restricting the prospects of cooperation.
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|Date of creation:||Jul 2008|
|Date of revision:|
|Publication status:||Published in Annales d'Économie et de Statistique, vol. 101, Institut national de la statistique et des études économiques, Paris, 2011, p. 327-346.|
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