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Toward an Efficiency Rationale for the Public Provision of Private Goods

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  • Peter Norman

    (UNC Chapel Hill)

  • Hanming Fang

    (Upenn)

Abstract

This paper shows that public provision of private goods may be justified on pure efficiency grounds in an environment where individuals consume both public and private goods. The government's involvement in the provision of private goods provides it with information about individuals' private good purchases that facilitates more efficient revenue extraction for the provision of public goods. We show that public provision of the private good improves economic efficiency under a condition that is always fulfilled under stochastic independence and satisfied for an open set of joint distributions. Our model is an example where there is an efficiency loss from separating revenue and expenditure problems, and is therefore of more general interest for the study of optimal taxation.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1185.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1185

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References

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  2. Raquel Fernandez & Richard Rogerson, 1994. "On the political economy of education subsidies," Staff Report 185, Federal Reserve Bank of Minneapolis.
  3. Hanming Fang & Peter Norman, 2008. "Optimal Provision of Multiple Excludable Public Goods," NBER Working Papers 13797, National Bureau of Economic Research, Inc.
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  5. Blomquist, Suren & Christiansen, Vidar, 1995. " Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 547-67, December.
  6. Tilman Borgers & Peter Norman, 2005. "A Note on Budget Balance under Interim Participation Constraints: The Case of Independent Types," Levine's Bibliography 784828000000000147, UCLA Department of Economics.
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  10. Peter Norman, 2004. "Efficient Mechanisms for Public Goods with Use Exclusions," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1163-1188, October.
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  17. BOADWAY, Robin & MARCHAND, Maurice & SATO, Motohiro, . "Subsidies versus public provision of private goods as instruments for redistribution," CORE Discussion Papers RP -1355, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Bruce, Neil & Waldman, Michael, 1991. "Transfers in Kind: Why They Can Be Efficient and Nonpaternalistic," American Economic Review, American Economic Association, vol. 81(5), pages 1345-51, December.
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  20. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  21. Cremer, Helmuth & Gahvari, Firouz, 1997. "In-kind transfers, self-selection and optimal tax policy," European Economic Review, Elsevier, vol. 41(1), pages 97-114, January.
  22. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
  23. Riley, John & Zeckhauser, Richard, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 267-89, May.
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  25. Garratt, Rod & Marshall, John M, 1994. "Public Finance of Private Goods: The Case of College Education," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 566-82, June.
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  1. One rationale for the public provision of public goods
    by Economic Logician in Economic Logic on 2009-02-27 19:33:00

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