Public Sharing Networks with Free Riders

This paper develops the model of network formation where links are used to share non-excludable public goods. In our model, we consider interactive costs and social perception of free-ride behavior. We first verify the result that public-sharing good network leads to specialization where some individuals contribute and others free ride. Second, our model features two stable pure strategy Nash equilibria where tolerant level for free-ride behavior determines the distance of two equilibria. Third, our model suggests efficient equilibrium lies between two Nash equilibria. Finally, we explore an insider-outsider model in which the cost for forming intra-group links is cheaper as compared to costs for forming links across groups.