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Within-group cooperation and between-group externalities in the provision of public goods

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  • Keisuke Hattori

Abstract

Using a simple two-group model of the private provision of public goods, this paper investigates the endogenous formation of within-group cooperation. We show that the equilibrium outcomes may result in a prisoners’ dilemma, depending on the characteristics of between-group externalities. If between-group externalities are strongly positive (negative), within-group cooperation does not occur in either group, which leads to Pareto-inferior (superior) outcomes for all agents. On the other hand, if between-group externalities are weakly positive or negative, each group chooses to cooperate within a group in providing public goods, but it may reduce utility of both group members. Our simple framework is applicable to a wide variety of socio-economic problems such as an arms race, advertising competition, transboundary pollution, and antiterrorism measures. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Keisuke Hattori, 2015. "Within-group cooperation and between-group externalities in the provision of public goods," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(2), pages 252-273, April.
    • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:2:p:252-273
    DOI: 10.1007/s10797-014-9308-1
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    2. Wolfgang Buchholz & Richard Cornes & Dirk Rübbelke, 2018. "Public goods and public bads," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(4), pages 525-540, August.

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    More about this item

    Keywords

    Externalities; Private provision of public goods; Cooperation; H41; C72;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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