A Network Approach to Public Goods

40 Pages Posted: 15 May 2014 Last revised: 20 Jan 2017

Matthew Elliott

California Institute of Technology - Division of the Humanities and Social Sciences

Benjamin Golub

Harvard University

Date Written: January 17, 2017

Abstract

Suppose agents can exert costly effort that creates nonrival, heterogeneous benefits for each other. At each possible outcome, a weighted, directed network describing marginal externalities is defined. We show that Pareto efficient outcomes are those at which the largest eigenvalue of the network is 1. An important set of efficient solutions — Lindahl outcomes — are characterized by contributions being proportional to agents' eigenvector centralities in the network. The outcomes we focus on are motivated by negotiations. We apply the results to identify who is essential for Pareto improvements, how to efficiently subdivide negotiations, and whom to optimally add to a team.

Keywords: public goods, externalities, bargaining, network centrality, eigenvector centrality

JEL Classification: C78, D50, D62, D70, H41

Suggested Citation

Elliott, Matthew and Golub, Benjamin, A Network Approach to Public Goods (January 17, 2017). Available at SSRN: https://ssrn.com/abstract=2436683 or http://dx.doi.org/10.2139/ssrn.2436683

Matthew Elliott

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

Benjamin Golub (Contact Author)

Harvard University ( email )

Littauer Center, Dept of Economics
1805 Cambridge Street
Cambridge, MA 02138
United States

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