Dynamic Free Riding with Irreversible
نویسنده
چکیده
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 steady state of the best Markov equilibrium converges to the efficient level as agents become increasingly patient. These results are in stark contrast to what happens in the more commonly studied case in which investments are reversible, where a continuum of very inefficient equilibrium steady states are possible for any level of depreciation, discount factor and size of population. Marco Battaglini Department of Economics Princeton University Princeton NJ 08544 [email protected] Salvatore Nunnari Department of Political Science Columbia University New York, NY 10027 [email protected] Thomas Palfrey Division of the Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125 [email protected] Battaglini gratefully acknowledges financial support from the Alfred P. Sloan Foundation. Palfrey gratefully acknowledges financial support from NSF (SES-0962802). We are grateful to seminar participants at the Einaudi Institute for Economics and Finance, Essex, London School of Economics, Ohio State, Princeton, Toulouse, Warwick, Yale and at the 2012 Southwest Economic Theory Conference, the co-Editor, and four anonymous referees for helpful comments. Steve Matthews provided very helpful detailed comments on an earlier draft. Juan Ortner provided excellent research assistance.
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Dynamic Free Riding with Irreversible Investments
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 a...
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