Public Goods in Networks with Constraints on Sharing

Abstract

This paper considers incentives to provide goods that are partially excludable along social links. We introduce a model in which each individual in a networked society makes a two-pronged decision: (i) decide how much of the good to provide, and (ii) decide which subset of neighbours to nominate as co-beneficiaries. An outcome specifies an endogenous subnetwork generated by nominations and a public goods game occurring over the realised subnetwork. We show the existence of specialised pure strategy Nash equilibria: those in which some individuals (the Drivers) contribute while the remaining individuals (the Passengers) free ride. We then consider how the set of efficient specialised equilibria vary as the constraints on sharing are relaxed and we show a monotonicity result. Finally, we introduce dynamics and show that only specialised equilibria can be stable against individuals unilaterally changing their provision level