A Network Approach to Public Goods

Suppose that 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 netwo...

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Bibliographic Details
Published in:The Journal of political economy 2019-04, Vol.127 (2), p.730-776
Main Authors: Elliott, Matthew, Golub, Benjamin
Format: Article
Language:English
Subjects:
Economic models
Externality
Negotiation
Pareto optimum
Political economy
Public goods
Teams
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Summary:Suppose that 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.
ISSN:0022-3808
1537-534X
DOI:10.1086/701032