TY - JOUR
AU - Battaglini,Marco
AU - Nunnari,Salvatore
AU - Palfrey,Thomas
TI - The Free Rider Problem: a Dynamic Analysis
JF - National Bureau of Economic Research Working Paper Series
VL - No. 17926
PY - 2012
Y2 - March 2012
DO - 10.3386/w17926
UR - http://www.nber.org/papers/w17926
L1 - http://www.nber.org/papers/w17926.pdf
N1 - Author contact info:
Marco Battaglini
Department of Economics
Uris Hall
Cornell University
Ithaca, NY 14850
Tel: 607-255-3052
E-Mail: battaglini@cornell.edu
Salvatore Nunnari
Bocconi University
Via Roentgen 1, Office 5-C2-05
20136 Milano, Italy
E-Mail: salvatore.nunnari@unibocconi.it
Thomas R. Palfrey
Division of Humanities and Social Sciences
228-77 Caltech
Pasadena, CA 91125
Tel: 626/395-4088
Fax: 626/432-1726
E-Mail: trp@hss.caltech.edu
AB - We present a dynamic model of free riding in which n infinitely lived agents choose between private consumption and contributions to a durable public good g. We characterize the set of continuous Markov equilibria in economies with reversibility, where investments can be positive or negative; and in economies with irreversibility, where investments are non negative and g can only be reduced by depreciation. With reversibility, there is a continuum of equilibrium steady states: the highest equilibrium steady state of g is increasing in n, and the lowest is decreasing. With irreversibility, the set of equilibrium steady states converges to a unique point as depreciation converges to zero: the highest steady state possible with reversibility. In both cases, the highest steady state converges to the efficient steady state as agents become increasingly patient. In economies with reversibility there are always non-monotonic equilibria in which g converges to the steady state with damped oscillations; and there can be equilibria with no stable steady state, but a unique persistent limit cycle.
ER -