Private Provision of Public Goods: Neutrality and Wealth-Dependent Preferences

24 Pages Posted: 12 Jul 2012

See all articles by Oskar Nupia

Oskar Nupia

Universidad de los Andes, Colombia - Department of Economics

Date Written: July 3, 2012

Abstract

Several authors have investigated the bounds of the so-called neutrality theorem where public goods are privately provided. Following this line of analysis, I investigate further in this paper the bounds of this result. I concentrate on an unexplored case in the existing literature — namely that where individual preferences for a public good are affected by respective levels of individual wealth. I prove that under such circumstances, the neutrality theorem no longer holds. More appealing, I discuss the conditions under which a redistribution of wealth might improve efficiency in the aggregate provision of public goods. Interestingly, we find that a redistribution of wealth from individuals who have a low valuation for public goods to those who have a high valuation for public goods does not necessarily increase its aggregate provision.

Keywords: public goods, private provision, neutrality theorem, income distribution

JEL Classification: D31

Suggested Citation

Nupia, Oskar, Private Provision of Public Goods: Neutrality and Wealth-Dependent Preferences (July 3, 2012). Documento CEDE No. 2012-15, Available at SSRN: https://ssrn.com/abstract=2104425 or http://dx.doi.org/10.2139/ssrn.2104425

Oskar Nupia (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

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