Free Riding and the Inefficiency of the Private Production of Pure Public Goods
The traditional essentially Ricardian model of the voluntary production of pure public goods is generalized to comprise any number of private and public goods, factors of production, and households. The main novel feature of our approach is to use a household production model. The efficiency losses from the underproduction of pure public goods in a Cournot-Nash equilibrium are related to the scale of the economy (number of households) and the extent of free riding (non-contributions of one or more households to one or more public goods). It is also shown that significant welfare gains can be achieved by a reallocation of factors between public goods alone. Globally applicable, necessary and sufficient conditions for welfare improvements are derived and interpreted.
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Volume (Year): 29 (1996)
Issue (Month): 1 (February)
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- A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
- Lloyd, P. J. & Schweinberger, A. G., 1988. "Trade expenditure functions and the gains from trade," Journal of International Economics, Elsevier, vol. 24(3-4), pages 275-297, May.