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Dynamic Free Riding with Irreversible Investments

Battaglini, Marco and Nunnari, Salvatore and Palfrey, Thomas R. (2014) Dynamic Free Riding with Irreversible Investments. American Economic Review, 104 (9). pp. 2858-2871. ISSN 0002-8282. doi:10.1257/aer.104.9.2858.

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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.

Item Type:Article
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URLURL TypeDescription DOIArticle
Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:© 2014 American Economic Association. Battaglini gratefully acknowledges financial support from the Alfred P. Sloan Foundation. Palfrey gratefully acknowledges financial support from NSF (SES-0962802). We are grateful to seminar participants at the Einaudi Institute for Economics and Finance, Essex, London School of Economics, Ohio State, Princeton, Toulouse, Warwick, Yale, and at the 2012 Southwest Economic Theory Conference. Steve Matthews provided very helpful detailed comments on an earlier draft. Juan Ortner provided excellent research assistance. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper.
Funding AgencyGrant Number
Alfred P. Sloan FoundationUNSPECIFIED
Issue or Number:9
Classification Code:JEL: D11; H41
Record Number:CaltechAUTHORS:20141009-095955387
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Official Citation:Battaglini, Marco, Salvatore Nunnari, and Thomas R. Palfrey. 2014. "Dynamic Free Riding with Irreversible Investments." American Economic Review, 104(9): 2858-71. DOI: 10.1257/aer.104.9.2858
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:50304
Deposited By: Tony Diaz
Deposited On:09 Oct 2014 20:54
Last Modified:10 Nov 2021 18:54

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