Risk-averse Behavior and Public Goods in Networks

This paper analyzes a model for the provision of public goods in networks with agents whose behavior described by risk aversion. There is a game when agent behaviors described by constant absolute risk aversion (CARA) and with a quadratic utility function. In general, the results show that the agent, in the case of absolute risk aversion, will put less effort if his neighbors put more effort (strategic substitutes). From this, we can conclude that in every social network there is the equilibrium when some people contribute, while others are “free riders”. This situation is symmetrical with respect to the result described in the article by Bramoulle and Kranton (2007) when agent behavior described as risk-neutral. However, in the case of a quadratic utility function, the results showed that the agent makes more efforts to obtain a successful project result when his neighbors also make a positive amount of effort. This means that the effect of strategic substitutes of efforts changes into strategic complements. Keywords: Public goods; Networks; Risk aversion; Strategic substitutes and complements.