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Reducing inefficiency in public good provision through linking

Author

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  • Stefano Galavotti

    (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze)

Abstract
We derive the optimal mechanism for the provision of n identical public goods in an economy with two agents, binary valuations. The mechanism "links" the n problems together because decisions and transfers are based on the whole vector of valuations of the agents. In particular, if agents have mixed valuations for a public good (one agent has a high valuation, the other a low valuation), the good is provided if the low valuation agent has a sufficiently high average valuation for the whole bundle of goods. We show that the mechanism is asymptotically efficient and we provide an example which compares the gains in terms of efficiency with optimal separate provision and with another asymptotically efficient mechanism in the literature.

Suggested Citation

  • Stefano Galavotti, 2010. "Reducing inefficiency in public good provision through linking," Working Papers - Mathematical Economics 2010-01, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    • Handle: RePEc:flo:wpaper:2010-01
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    References listed on IDEAS

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    More about this item

    Keywords

    public goods; linking; bundling.;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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