A dynamic conjectural variations model in the private provision of public goods: a differential game approach

The purpose of this paper is to provide a reasonable microfoundation to jus tify the concept of a conjectural variations equilibrium which is often use d in the literature on private provision of public goods with the help of t he differential game. By interpreting the steady state conjectures in a dyn amic contribution game as the conjectural variations in the corresponding s tatic game, we derive explicit forms of Nash or non-zero conjectural variat ions, depending on the choice of the strategy spaces. Furthermore, we find that there may be uncountable many conjectural variations and the possibili ty of matching behavior (i.e. positive conjectural variations), when non-li near Markov perfect strategies are used and when the domain of a state vari able is appropriately restricted. (C) 2001 Elsevier Science B.V. All rights reserved.