Lindahl vs. Courtnot Nash: The Role of the Income Distribution

University of Nottingham Research Paper No. 2004/27

22 Pages Posted: 2 Aug 2005

See all articles by Wolfgang Buchholz

Wolfgang Buchholz

Universitaet Regensburg; CESifo (Center for Economic Studies and Ifo Institute)

Richard C. Cornes

Australian National University (ANU) - Faculty of Economics & Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Wolfgang Peters

European University Frankfurt

Abstract

It is known that a Lindahl equilibrium is not necessarily Pareto-superior to the non-cooperative Cournot-Nash outcome. This paper derives conditions under which the Lindahl Pareto-dominates the Cournot-Nash solution. We show that all are better off in the Lindahl equilibrium as compared to the Cournot-Nash equilibrium when the exogenously given income distribution is not skewed too much or the number of countries is high. The underlying effects are related to the famous exploitation of the rich by the poor countries occurring in Cournot-Nash equilibrium (which follows from Warr neutrality) and the fact that underprovision of the public good in Cournot-Nash equilibrium is particularly serious in large economies. Finally, our results are applied to infer some favourable conditions for successful international cooperation aiming at the provision of global public goods.

Keywords: Public Goods, Cournot-Nash Equilibria, Lindahl Equilibria, International Environmental Agreements

JEL Classification: D3, H4

Suggested Citation

Buchholz, Wolfgang and Cornes, Richard C. and Peters, Wolfgang, Lindahl vs. Courtnot Nash: The Role of the Income Distribution. University of Nottingham Research Paper No. 2004/27. Available at SSRN: https://ssrn.com/abstract=764167 or http://dx.doi.org/10.2139/ssrn.764167

Wolfgang Buchholz (Contact Author)

Universitaet Regensburg ( email )

D-93040 Regensburg, 93053
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Richard C. Cornes

Australian National University (ANU) - Faculty of Economics & Commerce ( email )

Canberra, Australian Capital Territory 2601
Australia

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Wolfgang Peters

European University Frankfurt ( email )

Grosse Scharrnstr. 59
Frankfurt (Oder), Brandenburg 15230
Germany

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