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Dynamic free riding with irreversible investments

Author(s): Battaglini, Marco; Nunnari, S; Palfrey, TR

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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. (JEL D11, H41).
Publication Date: Sep-2014
Citation: Battaglini, M, Nunnari, S, Palfrey, TR. (2014). Dynamic free riding with irreversible investments. American Economic Review, 104 (9), 2858 - 2871. doi:10.1257/aer.104.9.2858
DOI: doi:10.1257/aer.104.9.2858
ISSN: 0002-8282
Pages: 2858 - 2871
Type of Material: Journal Article
Journal/Proceeding Title: American Economic Review
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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