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

Working Paper No. 12-W01

Marta Faias, Emma Moreno-Garcia, and Myrna Wooders



ABSTRACT [article]



Bergstrom, Blume and Varian (1986) provides an elegant gametheoretic 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 neutrality result - any redistribution of endowment that left the set of contributors unchanged would induce a new equilibrium with the same total public good provision. The assumption of one-private good greatly facilities the results. We provide analogues of the Bergstrom, Blume and Varian results in a model allowing multiple private and public goods. In addition, we relate the strategic market game equilibrium to the private provision of equilibrium of Villanaci and Zenginobuz (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, economies with production, not previously treated and, as a by-product, establishes a new existence of private-provision equilibrium.

Keywords and Phrases: Public goods, market games, equilibrium, Nash equilibrium, private provision, voluntary contributions

JEL Classification Numbers: D01, D40, D51

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