Dynamically stable cooperative provision of public goods under non-transferable utility

Abstract

The provision of public goods constitutes a classic case of market failure which calls for cooperative optimization. However, cooperation cannot be dynamically stable unless the participating agents’ cooperative payoffs are guaranteed to be no less than their non-cooperative payoffs throughout the cooperation duration. This paper derives dynamically stable cooperative solutions for public goods provision by asymmetric agents with non-transferable utility/payoffs in a differential game framework. It examines the dynamically stable subcore under a constant payoff weight. In the case of the absence of a dynamically stable subcore under a constant weight, a variable payoff weights scheme leading to a dynamically stable cooperative solution is designed. This is the first time that dynamically stable cooperative provision of public goods in a non-transferable payoff framework is provided, and further research along this line is expected.