A Dynamic Model of a Local Public Goods Economy with Crowding

Tone Dieckmann ()
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Tone Dieckmann: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim

No 00-41, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This paper presents a dynamic model of a local public goods economy with crowding effects, that is modeled as a potential game. In each period, individuals choose one of a finite set of local public goods, or facilities, or clubs. Crowding is modeled by assuming that each agent's utility depends not only on the facility but also on the number of other agents choosing the same club. We show that a simple adaptation process where agents' decisions are made by a myopic best--reply rule converges to a pure strategy Nash equilibrium of the corresponding public good game with probability one as time tends towards infinity. Further, we prove that all Nash equilibria are strong for the special case where payoff functions are either strictly increasing or strictly decreasing in club size. In this case, the best--reply process converges to a strong Nash equilibrium.

Pages: 12 pages
Date: 2000-09-15
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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