Private provision of discrete public goods: the correlated cost case

This paper explores the effects of correlated costs between players in an incomplete information game in the context of the private provision of discrete public goods. In such an incomplete information game, without correlation between players, equilibria in cut-point strategies (in other words, monotone strategies) always exist. A cut-point strategy prescribes to contribute a positive amount up to a certain cost level (‘the cut-point’) and to contribute zero above that critical level. However, when the players’ costs of contributing are correlated, an equilibrium in cut-point strategies may fail to exist because new incentives to free ride arise. A sufficient condition for the existence of an equilibrium in cut-point strategies is provided, and equilibria in non-monotone strategies are studied. The case without correlation is analyzed as a special case.