Interior matching equilibria in a public good economy: An aggregative game approach

If the equilibrium generated by a matching mechanism is to be the desired Pareto optimal outcome, it is necessary for every player to be at an interior solution at that equilibrium. Using the aggregative game approach developed by Cornes and Hartley (2003, 2007), this paper analyzes the conditions under which matching mechanisms in a public good economy lead to interior matching equilibria at which all agents make strictly positive flat contributions to the public good. In particular, we show that the distribution of income among the agents is crucial for both the existence of interior matching equilibria and Warr neutrality in the case of matching.

Research Highlights► Beyond uniqueness problems, there is another severe problem with matching in a public-good economy. ► Only interior matching equilibria bring about the desired outcome. ► Interiority only results for quite specific distributions of income. ► Consequently, some initial redistribution of income among agents may be required. ► With matching the conditions to ensure interiority are more special than those in a setting without matching