Abstract:
This paper considers incentives to provide goods that are non-excludable along social or geographic links. We find, first, that networks can lead to specialization in public good provision. In every social network there is an equilibrium where some individuals contribute and others free ride. In many networks, this extreme is the only outcome. Second, specialization can benefit society as a whole. This outcome arises when contributors are linked, collectively, to many agents. Finally, a new link increases access to public goods, but reduces individual incentives to contribute. Hence, overall welfare can be higher when there are holes in a network.
