Theoretical Economics 6 (2011), 219–256
Contributing or free-riding? Voluntary participation in a public good economy
Taiji Furusawa, Hideo Konishi
We consider a (pure) public goods provision problem with voluntary participation in a quasi-linear economy. We propose a new hybrid solution concept, the free-riding-proof core (FRP-Core), which endogenously determines a contribution group, public goods provision level, and how to share the provision costs. The FRP-Core is always nonempty in public goods economies but does not usually achieve global efficiency. The FRP-Core has support from both cooperative and noncooperative games. In particular, it is equivalent to the set of perfectly coalition-proof Nash equilibria (Bernheim, Peleg, and Whinston, 1987) of a dynamic game with players' participation decisions followed by a common agency game of public goods provision. We illustrate various properties of the FRP-Core with an example. We also show that the equilibrium level of public goods shrinks to zero as the economy is replicated.
Keywords: Endogenous coalition formation, externalities, public good, perfectly coalition-proof Nash equilibrium, free riders, free-riding-proof core, lobbying, common agency game
JEL classification: H41, C71, C72, D61, D72
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