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Subscription equilibrium with production: Non-neutrality and constrained suboptimality

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  • Villanacci, Antonio
  • Zenginobuz, Ünal

Abstract

We study a general equilibrium model with a non-profit firm producing a public good using private goods as inputs which are financed by voluntary contributions (subscriptions) of households. We analyze policy interventions that increase the public good level at subscription equilibria, and show that some of the standard results of the neutrality literature do not survive in our model with many private goods and relative price effects allowed. First, we show that a redistribution away from a contributor or even a decrease in the total wealth of all contributors (while the contributing set of agents remains intact) can lead to an increase in the provided level of public good. Moreover, we prove that increasing the production of public good is neither a sufficient nor a necessary condition to increase all householdsʼ welfare. Finally, we present conditions under which, for a generic set of economies, well chosen interventions will Pareto improve upon a given subscription equilibrium outcome. As a consequence, a general non-neutrality result in terms of utilities holds even if all households are contributors.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 147 (2012)
Issue (Month): 2 ()
Pages: 407-425

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Handle: RePEc:eee:jetheo:v:147:y:2012:i:2:p:407-425

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Web page: http://www.elsevier.com/locate/inca/622869

Related research

Keywords: General equilibrium; Public goods; Subscription equilibrium; Neutrality; Pareto improving interventions;

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References

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  1. Warr, Peter G., 1982. "Pareto optimal redistribution and private charity," Journal of Public Economics, Elsevier, vol. 19(1), pages 131-138, October.
  2. Kemp, Murray C., 1984. "A note of the theory of international transfers," Economics Letters, Elsevier, vol. 14(2-3), pages 259-262.
  3. Bernheim, B Douglas, 1986. "On the Voluntary and Involuntary Provision of Public Goods," American Economic Review, American Economic Association, vol. 76(4), pages 789-93, September.
  4. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, vol. 11(3), pages 495-521.
  5. Villanacci, Antonio & Zenginobuz, Unal, 2001. "On the neutrality of redistribution in a general equilibrium model with public goods," MPRA Paper 190, University Library of Munich, Germany, revised 09 Aug 2005.
  6. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, vol. 35(1), pages 57-73, February.
  7. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
  8. Milleron, Jean-Claude, 1972. "Theory of value with public goods: A survey article," Journal of Economic Theory, Elsevier, vol. 5(3), pages 419-477, December.
  9. David Cass & Alessandro Citanna, 1998. "Pareto improving financial innovation in incomplete markets," Economic Theory, Springer, vol. 11(3), pages 467-494.
  10. Villanacci, Antonio & Zenginobuz, E. Unal, 2006. "Subscription equilibria with public production: Existence and regularity," Research in Economics, Elsevier, vol. 60(4), pages 199-215, December.
  11. Antonio Villanacci & Ünal Zenginobuz, 2006. "Pareto improving interventions in a general equilibrium model with private provision of public goods," Review of Economic Design, Springer, vol. 10(3), pages 249-271, December.
  12. Gary S. Becker, 1981. "A Treatise on the Family," NBER Books, National Bureau of Economic Research, Inc, number beck81-1, October.
  13. Villanacci, Antonio & Zenginobuz, E.Unal, 2005. "Existence and regularity of equilibria in a general equilibrium model with private provision of a public good," Journal of Mathematical Economics, Elsevier, vol. 41(4-5), pages 617-636, August.
  14. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  15. Brennan, Geoffrey & Pincus, Jonathan J, 1983. "Government Expenditure Growth and Resource Allocation: The Nebulous Connection," Oxford Economic Papers, Oxford University Press, vol. 35(3), pages 351-65, November.
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Cited by:
  1. Marta Faias & Emma Moreno-garcía & Myrna Wooders, 2012. "A strategic market game approach for the private provision of public goods," Vanderbilt University Department of Economics Working Papers vuecon-12-00001, Vanderbilt University Department of Economics.
  2. repec:van:wpaper:1201 is not listed on IDEAS
  3. repec:van:wpaper:vuecon-sub-12-00008 is not listed on IDEAS
  4. Balasko, Yves & Geanakoplos, John, 2012. "Introduction to general equilibrium," Journal of Economic Theory, Elsevier, vol. 147(2), pages 400-406.

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