STRATEGIC TRANSFERS AND PRIVATE PROVISION OF PUBLIC-GOODS

This paper considers strategic monetary transfers between two agents when these contribute to a mutual public good. If the agents differ in their contribution productivity, then the less productive agent has an incentive to make large unconditional transfers to the more productive agent. Although agents move simultaneously in each stage of the game, the less productive agent becomes a Stackelberg leader. Furthermore, the generic subgame perfect equilibrium is characterized by full specialization.