Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81093
Authors: 
Ferrari, Giorgio
Riedel, Frank
Steg, Jan-Henrik
Year of Publication: 
2013
Series/Report no.: 
Working Papers, Center of Mathematical Economics 485
Abstract: 
We study a continuous-time problem of optimal public good contribution under uncertainty for an economy with a finite number of agents. Each agent can allocate his wealth between private consumption and repeated but irreversible contributions to increase the stock of some public good. We study the corresponding social planner problem and the case of strategic interaction between the agents and we characterize the optimal investment policies by a set of necessary and sufficient stochastic Kuhn-Tucker conditions. Suitably combining arguments from Duality Theory and the General Theory of Stochastic Processes, we prove an abstract existence result for a Nash equilibrium of our public good contribution game. Also, we show that our model exhibits a dynamic free rider effect. We explicitly evaluate it in a symmetric Black-Scholes setting with Cobb-Douglas utilities and we show that uncertainty and irreversibility of public good provisions do not affect free-riding.
Subjects: 
irreversible investment
singular stochastic control
first order conditions for optimality
stochastic games
Nash equilibrium
free-riding
JEL: 
C02
C61
C62
C73
Document Type: 
Working Paper

Files in This Item:
File
Size
496.65 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.