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Asymmetric Contributions from Identical Agents in a Local Interaction Model

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Abstract

The main findings of the theory on the private provision of public goods under the assumptions of identical individuals and normality of both the public good and private consumption are that: 1) there exists a unique Nash equilibrium pattern of contributions in which everybody contributes the same amount; 2) this pattern is stable. We show that these findings no longer hold in a context characterized by local interaction. Individuals are distributed around a circle and enjoy the level of public good contributed in their neighborhood. Each individual belongs to a neighborhood defined as the first k individuals on her right, the first k individuals on her left, and herself. In this context, it is always possible to find preferences satisfying the assumption of normality such that the symmetric Nash equilibrium is unstable, and there exists at least one asymmetric Nash equilibrium which is locally stable.

Suggested Citation

  • Luca Corazzini, Ugo Gianazza, 2006. "Asymmetric Contributions from Identical Agents in a Local Interaction Model," ISLA Working Papers 24, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy, revised Mar 2007.
  • Handle: RePEc:slp:islawp:islawp24
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    1. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-1071, September.
    2. Francis Bloch & Unal Zenginobuz, 2007. "The effect of spillovers on the provision of local public goods," Review of Economic Design, Springer;Society for Economic Design, vol. 11(3), pages 199-216, November.
    3. Scotchmer, Suzanne, 2002. "Local public goods and clubs," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 29, pages 1997-2042 Elsevier.
    4. Bilodeau, Marc & Gravel, Nicolas, 2004. "Voluntary provision of a public good and individual morality," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 645-666, March.
    5. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
    6. Cornes, Richard & Sandler, Todd, 1984. "Easy Riders, Joint Production, and Public Goods," Economic Journal, Royal Economic Society, vol. 94(375), pages 580-598, September.
    7. Cornes, Richard, 1979. "External Effects : An Alternative Formulation," The Warwick Economics Research Paper Series (TWERPS) 159, University of Warwick, Department of Economics.
    8. Bloch, Francis & Zenginobuz, E. Unal, 2006. "Tiebout equilibria in local public good economies with spillovers," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1745-1763, September.
    9. Diamond, Peter, 2006. "Optimal tax treatment of private contributions for public goods with and without warm glow preferences," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 897-919, May.
    10. Agnar Sandmo, 1980. "Anomaly and Stability in the Theory of Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 799-807.
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    Keywords

    Local Interaction; Public Goods; Nash Equilibria.;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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