Identifying the Lindahl Equilibrium Without Transfers as a Social Optimum

19 Pages Posted: 5 Jan 2013

See all articles by Zili Yang

Zili Yang

State University of New York at Binghamton

Date Written: February 2013

Abstract

The Lindahl equilibrium is an important solution concept in economies with externalities or public goods. In this paper, a ‘Negishi‐type’ theorem that connects the Lindahl equilibrium without transfers with the social optimum solution is proposed and proved. The theorem states that the solution of a social planner's problem with the social welfare weights proportional to the inverse of the private shadow prices of externalities in an auxiliary Nash equilibrium is the Lindahl equilibrium without transfers. To verify the theorem constructively, an algorithm for finding the Lindahl equilibrium is developed. Its efficacy is demonstrated through a numerical example.

Suggested Citation

Yang, Zili, Identifying the Lindahl Equilibrium Without Transfers as a Social Optimum (February 2013). Metroeconomica, Vol. 64, Issue 1, pp. 25-43, 2013, Available at SSRN: https://ssrn.com/abstract=2196724 or http://dx.doi.org/10.1111/j.1467-999X.2012.04164.x

Zili Yang (Contact Author)

State University of New York at Binghamton ( email )

Binghamton, NY 13902-6000
United States
607-777-4726 (Phone)

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