Endogenous Network Formation in Local Public Goods: An Experimental Analysis

Ying Chen (ying.chen2@nottingham.edu.cn), Tom Lane (tom.lane@newcastle.ac.uk) and Stuart McDonald (stuart.mcdonald@nottingham.edu.cn)
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Ying Chen: University of Nottingham Ningbo China
Stuart McDonald: University of Nottingham Ningbo China

No 2023-02, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: We experimentally explore public good production levels, and the endogenous formation of network structures to facilitate output sharing, among agents with heterogeneous production costs or valuations. Results corroborate the key theoretical insights of Kinateder & Merlino (2017) characterizing how agents form core-periphery networks. However, subjects often produce more and form denser networks than predicted, which sometimes reduces efficiency. There is some tendency for behaviour to converge towards the theoretical equilibrium over repeated play. Our results help us understand the emergence of the ‘law of the few’ in realworld networks, and suggest it is driven by endogenous sorting of heterogeneous agents.

Keywords: Local public goods; Network formation; Experiment; Heterogeneity (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth, nep-net and nep-ure
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