Voluntary Participation Mechanisms for Achieving Pareto-Superiority: Two-Player Prisoner’s Dilemma Game, Provision of Public Goods, and Externalities
Date Issued
2010
Date
2010
Author(s)
Kameda, Kyoko
Abstract
Public goods are goods or services that benefit all the members of a society, not just those who are willing to pay for them. Private provision of public goods usually
leads to Pareto inefficiency. The inefficiency happens because pursuing his own interest, each individual has an insufficient incentive to contribute to the public goods.
Focusing on this incentive problem, this thesis presents solutions to the public goods problems. Proposed deposit and compensation mechanisms enable societies achieve Pareto optimality or at least Pareto improvement. Applying these mechanisms to a game theory, voluntary provision of the public goods, and externalities, this thesis proves that the problem of the under-provision of public goods can be solved. Not only leading to an equilibrium which is Pareto superior to an original Nash equilibrium, but proposed mechanisms also induces vlountary participation in the public goods contribution in the first place.
Subjects
Public goods
Externalities
Free-riding
Nash equilibrium
Pareto optimality
Pareto improvement
Pareto superior
Type
thesis
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