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Optimal provision of a public good with costly exclusion

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  • Gravel, Nicolas
  • Poitevin, Michel

Abstract

We examine the problem of providing a non-rival and excludable public good to individuals with the same preferences and differing contributing capacities. Exclusion from the public good is costly in the sense that if two different quantities of the public good are consumed in the community, then the sum of the costs of providing the two quantities must be borne. By contrast, costless exclusion only requires the cost of the largest quantity consumed of the public good to be financed. We show that despite its important cost, providing public goods in different quantities is often part of any optimal provision of public good when the public authority is imperfectly informed about the agents' contributive capacities. In the specific situation where individuals have an additively separable logarithmic utility function, we provide a complete characterization of the optimal exclusion structure in the two-type case. We also show that the preference for such a costly exclusion is more likely when the heterogeneity in the population or income is large, and when the aversion to utility inequality is important.

Suggested Citation

  • Gravel, Nicolas & Poitevin, Michel, 2019. "Optimal provision of a public good with costly exclusion," Games and Economic Behavior, Elsevier, vol. 117(C), pages 451-460.
    • Handle: RePEc:eee:gamebe:v:117:y:2019:i:c:p:451-460
    DOI: 10.1016/j.geb.2019.07.009
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    1. Hanming Fang & Peter Norman, 2010. "Optimal Provision of Multiple Excludable Public Goods," American Economic Journal: Microeconomics, American Economic Association, vol. 2(4), pages 1-37, November.
    2. Hellwig, Martin F., 2007. "The provision and pricing of excludable public goods: Ramsey-Boiteux pricing versus bundling," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 511-540, April.
    3. Gravel, Nicolas & Poitevin, Michel, 2006. "The progressivity of equalization payments in federations," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1725-1743, September.
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    7. Martin F. Hellwig, 2003. "Public-Good Provision with Many Participants," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 589-614.
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    More about this item

    Keywords

    Mechanism design; Asymmetric information; Public goods; Costly exclusion;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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