American Economic Review Vol. 104 No. 9 2014

Dynamic Free Riding with Irreversible Investments

Marco Battaglini¹; Salvatore Nunnari²; Thomas R. Palfrey³

¹ Department of Economics, Princeton University, Fisher Hall, Princeton, NJ 08544 (e-mail: ) · ² Department of Political Science, Columbia University, Mail Code 3320, New York, NY 10027 (e-mail: ) · ³ Division of the Humanities and Social Sciences, California Institute of Technology, Mail Code 228-77, Pasadena, CA 91125 (e-mail: ).

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.

DOI

10.1257/aer.104.9.2858

Volume

104

Issue

9

Pages

2858-2871

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓