Dynamic Free Riding with Irreversible Investments
American Economic Review
vol. 104,
no. 9, September 2014
(pp. 2858-71)
Abstract
We study the Markov equilibria of a model of free riding in which n infinitely lived agents choose between private consumption and irreversible contributions to a durable public good. We show that the set of equilibrium steady states converges to a unique point as depreciation converges to zero. For any level of depreciation, moreover, the highest steady state converges to the efficient level as agents become increasingly patient. These results are in contrast to the case with reversible investments, where a continuum of inefficient equilibrium steady states exists for any level of depreciation, discount factor and size of population.Citation
Battaglini, Marco, Salvatore Nunnari, and Thomas R. Palfrey. 2014. "Dynamic Free Riding with Irreversible Investments." American Economic Review, 104 (9): 2858-71. DOI: 10.1257/aer.104.9.2858Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- H41 Public Goods