A Strategic Market Game Approach for the Private Provison of Public Goods

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Working paper
Marta Faias, Emma Moreno-Garcia and Myrna Wooders
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Vanderbilt University
Bergstrom, Blume and Varian (1986) provides an elegant game-theoretic model of an economy with one private good and one public good. Strategies of players consist of voluntary contributions of the private good to public good production. Without relying on first order conditions, the authors demonstrate existence of Nash equilibrium and an extension of Warr’s neutral-ity result — any redistribution of endowment that left the set of contributors unchanged would induce a new equilibrium with the same total public good pro-vision. The assumption of one-private good greatly facilities the results. We provide analogues of the Bergstrom, Blume and Varian results in a model allow-ing multiple private and public goods. In addition, we relate the strategic market game equilibrium to the private provision of equilibrium of Villanaci and Zengi-nobuz (2005), which provides a counter-part to the Walrasian equilibrium for a public goods economy. Our techniques follow those of Dubey and Geanakoplos (2003), which itself grows out of the seminal work of Shapley and Shubik (1977). Our approach also incorporates, into the strategic market game literature, eco-nomies with production, not previously treated and, as a by-product, establishes a new existence of private-provision equilibrium.
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