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A Dynamic Model of a Local Public Goods Economy with Crowding

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  • Dieckmann, Tone

    (Sonderforschungsbereich 504)

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.

Suggested Citation

  • Dieckmann, Tone, 2000. "A Dynamic Model of a Local Public Goods Economy with Crowding," Sonderforschungsbereich 504 Publications 00-41, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:00-41
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    Cited by:

    1. Tone Dieckmann & Ulrich Schwalbe, 2000. "Dynamic Coalition Formation and the Core," Econometric Society World Congress 2000 Contributed Papers 1878, Econometric Society.

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