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The Role of Prices for Excludable Public Goods

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  • Sören Blomquist

    ()

  • Vidar Christiansen

    ()

Abstract

When a public good is excludable it is possible to charge individuals for using the good. We study the role of prices for publicly provided excludable public goods within an extension of the Stern-Stiglitz version of the Mirrlees optimal income tax model. We show that for a public consumer good there is a range of circumstances in which charging a price for the public good decreases welfare. We find that a necessary condition for a positive price to be desirable is that the marginal valuation of the public good is increasing in leisure. However, even under this condition, welfare is initially decreasing in the price, implying that charging a lower than optimal price may be less efficient than setting a zero price. Thus, even when there is a case for charging a price for the public good, an attempt to implement the optimum in practice may be risky, as even setting a modest price to avoid overshooting the optimum may be Pareto inferior to charging no price at all. The policy case for a price may thus appear rather weak. We also find that producers using an intermediate excludable public good as an input should not be charged a price for using the good. Copyright Springer Science + Business Media, Inc. 2005

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 12 (2005)
Issue (Month): 1 (January)
Pages: 61-79

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Handle: RePEc:kap:itaxpf:v:12:y:2005:i:1:p:61-79

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: excludable public goods; public sector pricing; information constrained Pareto efficiency;

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References

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  1. Burns, Michael E & Walsh, Cliff, 1981. "Market Provision of Price-excludable Public Goods: A General Analysis," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 166-91, February.
  2. Brito, Dagobert L & Oakland, William H, 1980. "On the Monopolistic Provision of Excludable Public Goods," American Economic Review, American Economic Association, vol. 70(4), pages 691-704, September.
  3. Sören Blomquist & Vidar Christiansen, 2001. "The Role of Prices on Excludable Public Goods," CESifo Working Paper Series 536, CESifo Group Munich.
  4. Fraser, Clive D., 1996. "On the provision of excludable public goods," Journal of Public Economics, Elsevier, vol. 60(1), pages 111-130, April.
  5. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  6. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-78, August.
  7. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
  8. Eskeland, Gunnar S., 2000. "Environmental protection and optimal taxation," Policy Research Working Paper Series 2510, The World Bank.
  9. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  10. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
  11. Oakland, William H, 1974. "Public Goods, Perfect Competition, and Underproduction," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 927-39, Sept./Oct.
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Cited by:
  1. Blomquist, S. & Christiansen, V., 2001. "The Role of Prices on Excludable Public Goods," Papers 2001-14, Uppsala - Working Paper Series.
  2. Gilbert E. Metcalf & Jongsang Park, 2005. "A Comment on the Role of Prices for Excludable Public Goods," Discussion Papers Series, Department of Economics, Tufts University 0524, Department of Economics, Tufts University.
  3. Bernd Huber & Marco Runkel, 2004. "Tax Competition, Excludable Public Goods and User Charges," CESifo Working Paper Series 1172, CESifo Group Munich.
  4. Hellwig, Martin, 2003. "A Utilitarian Approach to the Provision and Pricing of Excludable Public Goods," Sonderforschungsbereich 504 Publications 03-36, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  5. Martin Hellwig, 2004. "Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2004_14, Max Planck Institute for Research on Collective Goods.

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