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Is there a Case for Public Provision of Private Goods if Preferences are Heterogeneous? An Example with Day Care

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  • Sören Blomquist
  • Vidar Christiansen

Abstract

A strong case for public provision of certain private goods has been established for an economy in which individuals have homogeneous preferences but differ in skill levels. There has been a critique of this model/mechanism arguing that heterogeneous preferences at a given skill level would invalidate the mechanism, implying that public provision of private goods is merely of theoretical, not of practical interest. The argument is that if the public provision level is set so as to fit the low skill person with a high preference for the publicly provided good, the low skill person with a low preference for the good comes out worse than in a system without public provision. In this paper we take this critique seriously and investigate if a public provision scheme can be constructed so that we obtain a strict Pareto improvement when going from a pure tax/transfer system to the public provision scheme even if preferences are heterogeneous. We find that heterogeneous preferences do not invalidate the benefits of publicly provided private goods. We also characterise the optimum tax and public provision policy.

Suggested Citation

  • Sören Blomquist & Vidar Christiansen, 2003. "Is there a Case for Public Provision of Private Goods if Preferences are Heterogeneous? An Example with Day Care," CESifo Working Paper Series 938, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_938
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    References listed on IDEAS

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    1. Blomquist, Soren & Christiansen, Vidar, 1999. "The political economy of publicly provided private goods," Journal of Public Economics, Elsevier, vol. 73(1), pages 31-54, July.
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    3. Sören Blömquist & Vidar Christiansen, 1998. "Price Subsidies Versus Public Provision," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 283-306, July.
    4. Robin Boadway & Maurice Marchand & Pierre Pestieau & María del Mar Racionero, 2002. "Optimal Redistribution with Heterogeneous Preferences for Leisure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 475-498, October.
    5. Boadway, Robin & Marchand, Maurice, 1995. "The Use of Public Expenditures for Redistributive Purposes," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 45-59, January.
    6. Blomquist, Soren & Christiansen, Vidar, 1998. "Topping Up or Opting Out? The Optimal Design of Public Provision Schemes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 399-411, May.
    7. Boadway, Robin & Keen, Michael, 2000. "Redistribution," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 12, pages 677-789 Elsevier.
    8. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-377, May.
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    11. 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.
    12. Boadway, Robin & Marchand, Maurice & Sato, Motohiro, 1998. " Subsidies versus Public Provision of Private Goods as Instruments for Redistribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 545-564, September.
    13. 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.
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    Cited by:

    1. Blomquist, Sören & Micheletto, Luca, 2004. "Redistribution, In-Kind Transfers and Matching Grants when the Federal Government Lacks Information on Local Costs," Working Paper Series 2004:15, Uppsala University, Department of Economics.
    2. Jukka Pirttilä & Sanna Tenhunen, 2008. "Pawns and queens revisited: public provision of private goods when individuals make mistakes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(5), pages 599-619, October.
    3. Avner Ben-Ner, 2006. "For-Profit, State and Non-Profit: How to Cut the Pie Among the Three Sectors," Chapters,in: Advancing Public Goods, chapter 2 Edward Elgar Publishing.
    4. Sören Blomquist & Luca Micheletto, 2009. "Nonlinear Income Taxation And Matching Grants In A Federation With Decentralized In-Kind Transfers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 543-575, May.

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    Keywords

    public provision; private goods; in-kind transfer; heterogeneous preferences; day care;

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