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Why Praise Inequality? Public Good Provision, Income Distribution and Social Welfare

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Dasgupta, Indraneel () (University of Durham)

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Abstract

We consider a two-person Cournot game of voluntary contributions to a public good with identical individual preferences, and examine equilibrium aggregate welfare under a separable, symmetric and concave social welfare function. Assuming the public good is pure, Itaya, de Meza and Myles (Econ. Letters, 57: 289-296; 1997) have shown that maximization of social welfare precludes income equality in this setting. We show that their case breaks down when the public good is impure: there exist individual preferences under which maximization of social welfare necessitates exact income equalization. Even if the public good is pure, any given, positive level of income inequality can be shown to be socially excessive by suitably specifying individual preferences. Thus, sans knowledge of individual preferences, one cannot reject the claim that a marginal redistribution from the rich to the poor will improve social welfare, regardless of how small inequality is in the status quo.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3988.

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Length: 8 pages
Date of creation: Jan 2009
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Handle: RePEc:iza:izadps:dp3988

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Related research
Keywords: public goods; voluntary provision; income distribution; inequality; social welfare;

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Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology

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  1. Cornes, Richard & Sandler, Todd, 1994. "The comparative static properties of the impure public good model," Journal of Public Economics, Elsevier, vol. 54(3), pages 403-421, July. [Downloadable!] (restricted)
  2. Dasgupta, Indraneel & Kanbur, Ravi, 2007. "Community and class antagonism," Journal of Public Economics, Elsevier, vol. 91(9), pages 1816-1842, September. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
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  4. Richard Cornes & Todd Sandler, 1998. "Pareto-Improving Redistribution and Pure Public Goods," Keele Department of Economics Discussion Papers (1995-2001) 98/04, Department of Economics, Keele University.
    Other versions:
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This page was last updated on 2009-11-30.

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