Lindahl vs. Courtnot Nash: The Role of the Income Distribution
University of Nottingham Research Paper No. 2004/27
22 Pages Posted: 2 Aug 2005
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: Suggested Citation