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Lindahl vs. Lindahl: Optimal siting and sizing of a noxious facility

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  • Ferraz, Eduardo
  • Mantilla, César

Abstract

Providing a noxious facility poses two problems previously unexplored together: where to locate it and how large it should be. We propose a mechanism combining some market-like properties with a modified second-price auction. The mechanism selects a host, a facility size, a compensation for hosting the project, and determines how the compensation and building costs are split among the non-hosts. Regardless of the selected host, any equilibrium outcome of this mechanism is a Lindahl allocation. If each community bids truthfully for becoming the host-a strategy which no community has incentives to deviate-the selected Lindahl allocation is globally optimal.

Suggested Citation

  • Ferraz, Eduardo & Mantilla, César, 2020. "Lindahl vs. Lindahl: Optimal siting and sizing of a noxious facility," Working papers 65, Red Investigadores de Economía.
  • Handle: RePEc:rie:riecdt:65
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    References listed on IDEAS

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    1. Kleindorfer Paul R. & Sertel Murat R., 1994. "Auctioning the Provision of an Indivisible Public Good," Journal of Economic Theory, Elsevier, vol. 64(1), pages 20-34, October.
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    More about this item

    Keywords

    NIMBY; LULU; Lindahl outcomes; Public projects; Mechanism design;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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