Toward an Efficiency Rationale for the Public Provision of Private Goods

32 Pages Posted: 15 Feb 2008 Last revised: 14 Oct 2022

See all articles by Hanming Fang

Hanming Fang

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Peter Norman

University of North Carolina (UNC) at Chapel Hill

Date Written: February 2008

Abstract

This paper shows that public provision of private goods may be justified on pure efficiency grounds in an environment where individuals consume both public and private goods. The government's involvement in the provision of private goods provides it with information about individuals' private good purchases that facilitates more efficient revenue extraction for the provision of public goods. We show that public provision of the private good improves economic efficiency under a condition that is always fulfilled under stochastic independence and satisfied for an open set of joint distributions. Our model is an example where there is efficiency loss from separating revenue and expenditure problems in public finance, and is therefore of more general interest for the study of optimal taxation.

Suggested Citation

Fang, Hanming and Norman, Peter, Toward an Efficiency Rationale for the Public Provision of Private Goods (February 2008). NBER Working Paper No. w13827, Available at SSRN: https://ssrn.com/abstract=1093685

Hanming Fang (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter Norman

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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