Working and Shirking: Equilibrium in Public-Goods Games with Overlapping Generations of Players

Eric S Dickson and Kenneth A Shepsle

The Journal of Law, Economics, and Organization, 2001, vol. 17, issue 2, 285-318

Abstract: In overlapping-generations models of public-goods provision, in which the contribution decision is binary and lifetimes are finite, the set of symmetric subgame-perfect equilibria can be categorized into three types: seniority equilibria, in which players contribute (effort) until a predetermined age and then shirk thereafter; dependency equilibria, in which players initially shirk, then contribute for a set number of periods, then shirk for the remainder of their lives; and sabbatical equilibria, in which players alternately contribute and shirk for periods of varying length before entering a final stage of shirking. In a world without discounting we establish conditions for equilibrium and demonstrate that for any dependency equilibrium there is a seniority equilibrium that Pareto dominates it ex ante. We proceed to characterize generational preferences over alternative seniority equilibria. We explore the aggregation of these preferences by embedding the public-goods provision game in a voting framework and solving for the majority-rule equilibria. In this way we can think of political processes as providing one natural framework for equilibrium selection in the original public-goods provision game. Copyright 2001 by Oxford University Press.

Date: 2001
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