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Endogenous Network Formation in Local Public Goods: An Experimental Analysis

Author

Listed:
  • Ying Chen

    (University of Nottingham Ningbo China)

  • Tom Lane

    (University of Nottingham Ningbo China)

  • Stuart McDonald

    (University of Nottingham Ningbo China)

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 or valuations. Results corroborate the key theoretical insights of Kinateder & 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 realworld networks, and suggest it is driven by endogenous sorting of heterogeneous agents.

Suggested Citation

  • Ying Chen & Tom Lane & Stuart McDonald, 2023. "Endogenous Network Formation in Local Public Goods: An Experimental Analysis," Discussion Papers 2023-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2023-02
    as

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    References listed on IDEAS

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    Keywords

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

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