Dynamic Free Riding with Irreversible Investments (PDF)

We study the Markov equilibria of a model of free riding in which n infinitely lived agents choose between
private consumption and irreversible contributions to a durable public good. We show that the set of
equilibrium steady states converges to a unique point as depreciation converges to zero. For any level
of depreciation, moreover, the steady state of the best Markov equilibrium converges to the efficient
level as agents become increasingly patient. These results are in stark contrast to what happens in the
more commonly studied case in which investments are reversible, where a continuum of very inefficient
equilibrium steady states are possible for any level of depreciation, discount factor and size of population.