Public Goods in Endogenous Networks

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Markus Kinateder, Luca Paolo Merlino
American Economic Journal: Microeconomics
Issue number: 
VOL. 9, NO. 3, August 2017
American Economic Association
Journal pages: 
We study a local public good game in an endogenous network with heterogeneous players. The source of heterogeneity affects the gains from a connection and hence equilibrium networks. When players differ in the cost of producing the public good, active players form pyramidal complete multipartite graphs; yet, better types need not have more neighbors. When players differ in the valuation of the public good, nested split graphs emerge in which production need not be monotonic in type. In large societies, few players produce a lot; furthermore, networks dampen inequality under cost heterogeneity and increase it under heterogeneity in valuation.
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