Achieving Efficiency in Dynamic Contribution Games ∗

We analyze a dynamic contribution game to a public project, in which a group of agents exert costly effort over time to make progress on a project. The project progresses gradually, and it is completed once a pre-specified amount of progress has been made, at which point it generates a lump sum payoff. A standard result in these games is that equilibrium efforts are inefficiently low due to the free-rider problem. We characterize a budget balanced mechanism which at every moment, induces each agent to exert the first best effort level as the outcome of a Markov Perfect Equilibrium. This mechanism specifies that each agent makes an upfront payment, as well as flow payments while the project is in progress. These payments are placed in a savings account that accumulates interest, and upon completion of the project, the agents receive the payoff generated by the project, plus the balance in the savings account up to a cap. This mechanism is implementable if the agents have sufficient cash reserves at the outset of the game. We also characterize the socially optimal mechanism if the agents’ cash reserves are below the threshold necessary to attain efficiency.