Pareto improving interventions in a general equilibrium model with private provision of public goods

Villanacci, Antonio and Zenginobuz, Unal (2004): Pareto improving interventions in a general equilibrium model with private provision of public goods. Forthcoming in: Review of Economic Design

Abstract

Most of the literature on government intervention in models of voluntary public goods supply focuses on interventions that increase the total level of a public good, which is considered to be typically underprovided. However, an intervention that is successful in increasing the public good level need not benefit everyone. In this paper we take a direct approach to welfare properties of voluntary provision equilibria in a full blown general equilibrium model with public goods and study interventions that have the goal of Pareto improving on the voluntary provision outcome. Towards this end, we study a model with many private goods and nonlinear production technology for the public good, and hence allow for relative price effects to serve as a powerful channel of intervention. In this setup we show that Pareto improving interventions generally do exist. In particular, direct government provision financed by “small”, or “local”, lump-sum taxes can be used generically to Pareto improve upon the voluntary provision outcome.

• Item Type: MPRA Paper
• Language: English
• Keywords: general equilibrium; private provision of public goods; Pareto improving interventions
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production Economies; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods

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