Exclusion and Moral Hazard: The Case of Identical Demand

Journal of Public Economics, Volume 52, Issue 2, September 1993, Pages 217–235

University of Alberta School of Business Research Paper No. 2013-1190

Posted: 5 Jan 2016

See all articles by Emilson Delfino Silva

Emilson Delfino Silva

University of Alberta - Department of Marketing, Business Economics & Law

Charles M. Kahn

University of Illinois, Urbana-Champaign; Feseral Reserve Bank of Saint Louis; Bank of Canada

Date Written: 1992

Abstract

This paper examines the problem of costly exclusion of individuals from a public good. Previous analyses of exclusion have treated it as solely a question of technologies; in our analysis exclusion depends on technology and incentives. In this paper providers of the good design a mechanism to provide an optimal level of deterrence to free riders. If individuals are heterogeneous optimal deterrence may allow some free riders. We examine the effect of costs of exclusion on the Samuelson condition for optimal provision, and see that the desire to deter free riding leads to underprovision of the good irrespective of the degree of rivalry of the good.

Suggested Citation

Delfino Silva, Emilson and Kahn, Charles M., Exclusion and Moral Hazard: The Case of Identical Demand (1992). Journal of Public Economics, Volume 52, Issue 2, September 1993, Pages 217–235; University of Alberta School of Business Research Paper No. 2013-1190. Available at SSRN: https://ssrn.com/abstract=2285066

Emilson Delfino Silva (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

Charles M. Kahn

University of Illinois, Urbana-Champaign ( email )

Department of Finance
340 Wohlers Hall
Champaign, IL 61820
United States

HOME PAGE: http://kahnfrance.com/cmk/

Feseral Reserve Bank of Saint Louis

411 Locust St
Saint Louis, MO 63011
United States

Bank of Canada

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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