Achieving Efficiency in Dynamic Contribution Games

We analyze a game in which a group of agents exerts costly effort over time to make progress on a project. The project is completed once the cumulative effort reaches a prespecified threshold, at which point it generates a lump-sum payoff. We characterize a budget-balanced mechanism that induces eac...

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Bibliographic Details
Published in:American economic journal. Microeconomics 2016-11, Vol.8 (4), p.309-342
Main Authors: Cvitanić, Jakša, Georgiadis, George
Format: Article
Language:English
Subjects:
Budgeting
Collaboration
Entrepreneurs
Game theory
Markov analysis
Product development
Startups
Studies
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Summary:We analyze a game in which a group of agents exerts costly effort over time to make progress on a project. The project is completed once the cumulative effort reaches a prespecified threshold, at which point it generates a lump-sum payoff. We characterize a budget-balanced mechanism that induces each agent to exert the first-best effort level as the outcome of a Markov perfect equilibrium, thus eliminating the free-rider problem. We also show how our mechanism can be adapted to other dynamic games with externalities, such as strategic experimentation and the dynamic extraction of a common resource.
ISSN:1945-7669
1945-7685
DOI:10.1257/mic.20160018