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Public Goods in Open Economies with Heterogeneous Individuals

  • Joseph E. Stiglitz

This paper formulates a simple model of "perfect community competition." It is shown that (1) the equilibrium is Pareto optimal; (2) communities will, in general, be heterogeneous; not all individuals will have the same tastes; but (3) all individuals of a given skill within the community will have identical preferences; (4) in spite of the heterogeneity of tastes, there is complete unanimity with respect to tax and expenditure policy, and there is no scope for redistribution at the local level; (5) under certain circumstances, everyone's expected utility can be increased by introducing a particular kind of unequal treatment of individuals who are otherwise identical with respect to tastes and production characteristics; (6) when there is not "perfect community competition, " the equilibrium will, in general, not be Pareto optimal, and benefit taxation may be desirable.

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File URL: http://www.nber.org/papers/w0802.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0802.

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Date of creation: Nov 1981
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Publication status: published as Stiglitz, Joseph E. "Public Goods in Open Economies with Heterogeneous Individuals." Locational Analysis of Public Facilities, edited by J.F. Thisse & H.G. Zoller, North Holland Publishing Company, (1983), pp. 55-78.
Handle: RePEc:nbr:nberwo:0802
Note: PE
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  1. Berglas, Eitan, 1976. "Distribution of tastes and skills and the provision of local public goods," Journal of Public Economics, Elsevier, vol. 6(4), pages 409-423, November.
  2. Stiglitz, Joseph E., 1982. "Utilitarianism and horizontal equity : The case for random taxation," Journal of Public Economics, Elsevier, vol. 18(1), pages 1-33, June.
  3. Joseph E. Stiglitz, 1982. "The Theory of Local Public Goods Twenty-Five Years After Tiebout: A Perspective," NBER Working Papers 0954, National Bureau of Economic Research, Inc.
  4. Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, vol. 45(4), pages 783-809, May.
  5. Richard J. Arnott & Joseph E. Stiglitz, 1980. "Aggregate Land Rents and Aggregate Transport Costs," NBER Working Papers 0523, National Bureau of Economic Research, Inc.
  6. Kramer, Gerald H, 1973. "On a Class of Equilibrium Conditions for Majority Rule," Econometrica, Econometric Society, vol. 41(2), pages 285-97, March.
  7. Arnott, Richard J & Stiglitz, Joseph E, 1979. "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 471-500, November.
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