Social Network and Private Provision of Public Goods

31 Pages Posted: 8 Mar 2016

See all articles by Bulat Sanditov

Bulat Sanditov

Maastricht University

Saurabh Arora

University of Sussex - Science and Technology Policy Research Unit (SPRU)

Date Written: December 9, 2015

Abstract

Using a simple model with interdependent utilities, we study how social networks influence individual voluntary contributions to the provision of a public good. Departing from the standard model of public good provision, we assume that an agent’s utility has two terms: (a) ‘ego’-utility derived from the agent’s consumption of public and private goods, and (b) a social utility which is the sum of utility spillovers from other agents with whom the agent has social relationships. We establish conditions for the existence of a unique interior Nash equilibrium and describe the equilibrium in terms of network characteristics. We show that social network always has a positive effect on the provision of the public good. We also find that, in networks with “small world”-like modular structures, ‘bridging’ ties connecting distant parts of social network play an important role inducing the agent’s contribution to public good. Assumptions and results of the model are discussed in relation to the role of social capital in community-level development projects and to the effect of innovation networks on firms’ R&D investments.

Keywords: public goods, interrelated utilities, social capital, R&D networks

JEL Classification: H41, D85, O31

Suggested Citation

Sanditov, Bulat and Arora, Saurabh, Social Network and Private Provision of Public Goods (December 9, 2015). SWPS 2015-35. Available at SSRN: https://ssrn.com/abstract=2744695 or http://dx.doi.org/10.2139/ssrn.2744695

Bulat Sanditov (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Saurabh Arora

University of Sussex - Science and Technology Policy Research Unit (SPRU) ( email )

Mantell Building
Falmer
Brighton BN1 9RH UK, Sussex
United Kingdom

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