Subgame Consistent Cooperative Provision of Public Goods Under Accumulation and Payoff Uncertainties

David W. K. Yeung () and Leon A. Petrosyan ()
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David W. K. Yeung: Saint Petersburg State University
Leon A. Petrosyan: Saint Petersburg State University

A chapter in Dynamic Games in Economics, 2014, pp 289-315 from Springer

Abstract: Abstract The provision of public goods constitutes a classic case of market failure which calls for cooperative optimization. However, cooperation cannot be sustainable unless there is guarantee that the agreed-upon optimality principle can be maintained throughout the planning duration. This paper derives subgame consistent cooperative solutions for public goods provision by asymmetric agents in a discrete-time dynamic game framework with uncertainties in stock accumulation dynamics and future payoff structures. In particular, subgame consistency ensures that as the game proceeds agents are guided by the same optimality principle and hence they do not possess incentives to deviate from the previously adopted optimal behavior. A “payoff distribution procedure” leading to subgame-consistent solutions is derived and an illustration is presented. This is the first time that subgame consistent cooperative provision of public goods with uncertainties in stock dynamics and future payoffs is analyzed.

Keywords: Public Capital; Public Good Provision; Joint Payoff; Stochastic Differential Game; Nash Equilibrium Solution (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-642-54248-0_13

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DOI: 10.1007/978-3-642-54248-0_13

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