Joint with Center for Economic Design (CED)

 

April 25, 2008

 

"Public Goods, Bounded Attention Spans
and Equilibrium in the Internet Economy"

John Conley

 

Abstract

We consider a pure public goods economy with a continuum of agents. In the standard model, the optimal public good levels will generally be infinitely larger than the private good consumption levels. This does not seem to be a reasonable or even a comprehensible limit of a large economy. We propose instead to model internet and other intellectual content as our canonical public goods. We argue that in such an environment, agents consume finite amounts of a finite number of public goods. Limited attention spans prevent agents from consuming all, or even a large number, of public goods. We show that the infinitely large aggregate public goods contributions in such an economy end up being absorbed in an infinite diversity of public goods rather than by infinite levels of any finite set of public goods. We conclude by showing that while approximately Pareto optimal allocations exist, price systems that satisfy the standard welfare theorems are difficult to define. Because price systems do not signal profit opportunities in equilibrium, there may indeed be opportunities for economic profits in the internet economy.