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Subscription equilibrium with production: Non-neutrality and constrained suboptimality

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  • Villanacci, Antonio
  • Zenginobuz, Ünal
Abstract
We study a general equilibrium model with a non-profit firm producing a public good using private goods as inputs which are financed by voluntary contributions (subscriptions) of households. We analyze policy interventions that increase the public good level at subscription equilibria, and show that some of the standard results of the neutrality literature do not survive in our model with many private goods and relative price effects allowed. First, we show that a redistribution away from a contributor or even a decrease in the total wealth of all contributors (while the contributing set of agents remains intact) can lead to an increase in the provided level of public good. Moreover, we prove that increasing the production of public good is neither a sufficient nor a necessary condition to increase all householdsʼ welfare. Finally, we present conditions under which, for a generic set of economies, well chosen interventions will Pareto improve upon a given subscription equilibrium outcome. As a consequence, a general non-neutrality result in terms of utilities holds even if all households are contributors.

Suggested Citation

  • Villanacci, Antonio & Zenginobuz, Ünal, 2012. "Subscription equilibrium with production: Non-neutrality and constrained suboptimality," Journal of Economic Theory, Elsevier, vol. 147(2), pages 407-425.
    • Handle: RePEc:eee:jetheo:v:147:y:2012:i:2:p:407-425
    DOI: 10.1016/j.jet.2010.08.012
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    References listed on IDEAS

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    1. Villanacci, Antonio & Zenginobuz, E. Unal, 2006. "Subscription equilibria with public production: Existence and regularity," Research in Economics, Elsevier, vol. 60(4), pages 199-215, December.
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    7. Antonio Villanacci & Ünal Zenginobuz, 2007. "On the Neutrality of Redistribution in a General Equilibrium Model with Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 183-200, April.
    8. Villanacci, Antonio & Zenginobuz, E.Unal, 2005. "Existence and regularity of equilibria in a general equilibrium model with private provision of a public good," Journal of Mathematical Economics, Elsevier, vol. 41(4-5), pages 617-636, August.
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    Cited by:

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    3. Elena L. Mercato & Vincenzo Platino, 2017. "On the regularity of smooth production economies with externalities: competitive equilibrium à la Nash," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(1), pages 287-307, January.
    4. Burak Unveren, 2017. "Stability and Taxation in Monopolistic Competition," Economics Bulletin, AccessEcon, vol. 37(4), pages 2315-2323.
    5. Faias, Marta & Moreno-García, Emma & Wooders, Myrna, 2015. "On neutrality with multiple private and public goods," Mathematical Social Sciences, Elsevier, vol. 76(C), pages 103-106.
    6. Balasko, Yves & Geanakoplos, John, 2012. "Introduction to general equilibrium," Journal of Economic Theory, Elsevier, vol. 147(2), pages 400-406.

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    More about this item

    Keywords

    General equilibrium; Public goods; Subscription equilibrium; Neutrality; Pareto improving interventions;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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