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“Almost” subsidy-free spatial pricing in a multi-dimensional setting

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  • DREZE, Jacques

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • LE BRETON, Michel
  • SAVVATEEV, Alexei
  • WEBER, Shlomo

Abstract

Consider a population of citizens uniformly spread over the entire plane, that faces a problem of locating public facilities to be used by its members. The cost of every facility is financed by its users, who also face an idiosyncratic private access cost to the facility. We assume that the facilities' cost is independent of location and access costs are linear with respect to the Euclidean distance. We show that an external intervention that covers 0.19% of the facility cost is sufficient to guarantee secession-proofness or no cross-subsidization, where no group of individuals is charged more than its stand alone cost incurred if it had acted on its own. Moreover, we demonstrate that in this case the Rawlsian access pricing is the only secession-proof allocation.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007047.

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Date of creation: 01 Jul 2007
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Handle: RePEc:cor:louvco:2007047

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Related research

Keywords: secession-proofness; optimal jurisdictions; Rawlsian allocation; hexagonal partition; cross-subsidization;

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References

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  1. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February.
  2. Michel Le Breton & Shlomo Weber, 2003. "The Art of Making Everybody Happy: How to Prevent a Secession," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 4.
  3. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  4. Weber, Shlomo & Zamir, Shmuel, 1985. "Proportional taxation: Nonexistence of stable structures in an economy with a public good," Journal of Economic Theory, Elsevier, vol. 35(1), pages 178-185, February.
  5. Bollobas, Bela & Stern, Nicholas, 1972. "The optimal structure of market areas," Journal of Economic Theory, Elsevier, vol. 4(2), pages 174-179, April.
  6. Wooders, Myrna, 1978. "Equilibria, the core, and jurisdiction structures in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 18(2), pages 328-348, August.
  7. Casella, Alessandra, 2001. "The Role of Market Size in the Formation of Jurisdictions," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 83-108, January.
  8. Bogomolnaia, Anna & Le Breton, Michel & Savvateev, Alexei & Weber, Shlomo, 2006. "Stability under Unanimous Consent, Free Mobility and Core," IDEI Working Papers 413, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Mas-Colell, Andreu, 1980. "Efficiency and Decentralization in the Pure Theory of Public Goods," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 625-41, June.
  10. Konishi, Hideo & Le Breton, Michel & Weber, Shlomo, 1998. "Equilibrium in a Finite Local Public Goods Economy," Journal of Economic Theory, Elsevier, vol. 79(2), pages 224-244, April.
  11. Le Breton, Michel & Weber, Shlomo, 2003. "The Art of Making Everybody Happy : How to Prevent a Secession," IDEI Working Papers 164, Institut d'Économie Industrielle (IDEI), Toulouse.
  12. Stern, Nicholas, 1972. "The optimal size of market areas," Journal of Economic Theory, Elsevier, vol. 4(2), pages 154-173, April.
  13. Guesnerie, Roger & Oddou, Claude, 1988. " Increasing Returns to Size and Their Limits," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 259-73.
  14. Guesnerie Roger & Oddou Claude, 1979. "Second best taxation as a game," CEPREMAP Working Papers (Couverture Orange) 7919, CEPREMAP.
  15. Wooders, Myrna, 1980. "The Tiebout Hypothesis: Near Optimality in Local Public Good Economies," Econometrica, Econometric Society, vol. 48(6), pages 1467-85, September.
  16. Bogomolnaia, Anna & Le Breton, Michel & Savvateev, Alexei & Weber, Shlomo, 2005. "Stability of Jurisdiction Structures under the Equal Share and Median Rule," IDEI Working Papers 362, Institut d'Économie Industrielle (IDEI), Toulouse.
  17. Jehiel, Philippe & Scotchmer, Suzanne, 2001. "Constitutional Rules of Exclusion in Jurisdiction Formation," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 393-413, April.
  18. Haimanko, Ori & Le Breton, Michel & Weber, Shlomo, 2004. "Voluntary formation of communities for the provision of public projects," Journal of Economic Theory, Elsevier, vol. 115(1), pages 1-34, March.
  19. Greenberg, Joseph & Weber, Shlomo, 1986. "Strong tiebout equilibrium under restricted preferences domain," Journal of Economic Theory, Elsevier, vol. 38(1), pages 101-117, February.
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Cited by:
  1. Le Breton, Michel & Moreno-Ternero, Juan D. & Savvateev, Alexei & Weber, Shlomo, 2012. "Stability and Fairness in Models with a Multiple Membership," TSE Working Papers 12-300, Toulouse School of Economics (TSE).
  2. Philippe De Donder & Michel Le Breton & Eugenio Peluso, 2012. "On the (sequential) majority choice of public good size and location," Social Choice and Welfare, Springer, vol. 39(2), pages 457-489, July.
  3. Matthias Dahm, 2010. "Free mobility and taste-homogeneity of jurisdiction structures," International Journal of Game Theory, Springer, vol. 39(1), pages 259-272, March.
  4. Camelia Bejan & Juan Gómez, 2009. "Core extensions for non-balanced TU-games," International Journal of Game Theory, Springer, vol. 38(1), pages 3-16, March.
  5. Savvateev, A., 2013. "Coalitional Stability of a "Bipolar World"," Journal of the New Economic Association, New Economic Association, vol. 17(1), pages 10-43.

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