Contributing or free-riding? Voluntary participation in a public good economy

Abstract

We consider a (pure) public goods provision problem with voluntary participation in a quasilinear economy. We propose a new hybrid solution concept, the free-riding-proof core (FRP-core), which endogenously determines a contribution group, public goods provision level, and how to share the provision costs. The FRP-core is always nonempty in public goods economies but does not usually achieve global efficiency. The FRP-core has support from both cooperative and noncooperative games. In particular, it is equivalent to the set of perfectly coalition-proof Nash equilibria (Bernheim et al. 1987) of a dynamic game with players' participation decisions followed by a common agency game of public goods provision. We illustrate various properties of the FRP-core with an example. We also show that the equilibrium level of public goods shrinks to zero as the economy is replicated. © 2011 Taiji Furusawa and Hideo Konishi.