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Comparing the First-Best and Second-Best Provision of a Club Good: An Example

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  • Ali al-Nowaihi
  • Clive Fraser

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Abstract

Excludable and congestible shared goods - club goods (e.g., internet access facilities) - are more prevalent than Samuelsonian public goods. Our example shows that, unlike the usual presumption with pure public goods, the optimal second-best supply of a club good might exceed its first-best level. We argue that this arises because user charges can be levied on club goods the government need not impose distortionary taxes to finance them. Thus, the first and second best in a club economy differ mainly because informational constraints prevent the government achieving the right income distribution in the latter.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Public Sector Economics with number 01/8.

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Handle: RePEc:lec:lpserc:01/8

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  1. Wildasin, David E, 1984. "On Public Good Provision with Distortionary Taxation," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 22(2), pages 227-43, April.
  2. Fraser, Clive D., 1996. "On the provision of excludable public goods," Journal of Public Economics, Elsevier, Elsevier, vol. 60(1), pages 111-130, April.
  3. Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, American Economic Association, vol. 81(1), pages 153-66, March.
  4. Ming Chang, 2000. "Rules and Levels in the Provision of Public Goods: The Role of Complementarities between the public Good and Taxed Commodities," International Tax and Public Finance, Springer, Springer, vol. 7(1), pages 83-91, February.
  5. Gaube, Thomas, 2000. "When do distortionary taxes reduce the optimal supply of public goods?," Journal of Public Economics, Elsevier, Elsevier, vol. 76(2), pages 151-180, May.
  6. Manzini, Paola & Mariotti, Marco, 2002. " A "Tragedy of the Clubs": Excess Entry in Exclusive Coalitions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 115-36.
  7. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 119-28, January.
  8. Brito, Dagobert L & Oakland, William H, 1980. "On the Monopolistic Provision of Excludable Public Goods," American Economic Review, American Economic Association, American Economic Association, vol. 70(4), pages 691-704, September.
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Cited by:
  1. al-Nowaihi, Ali & Fraser, Clive D., 2012. "Does the public sector over-provide club goods? A general result," Economics Letters, Elsevier, Elsevier, vol. 117(2), pages 397-400.

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