Public Goods in Endogenous Networks

Abstract

In this paper, we study a local public good game in an endogenous network with heterogeneous agents. We consider two specifications in which different networks arise. When agents differ in the cost of acquiring the public good, active agents form hierarchical complete multipartite graphs; yet, better types need not have more neighbors. When agents' benefits from the public good are heterogeneous, nested split graphs emerge in which investment need not be monotonic in type. In large societies, few agents produce a lot and networks dampen inequality for most agents under cost heterogeneity and increase it under heterogeneity in benefits.