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Pareto-Efficient Solutions for Shared Public Good Provision: Nash Bargaining versus Exchange-Matching-Lindahl

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  • Dijkstra, Bouwe R.
  • Nentjes, Andries

Abstract

We compare two cooperation mechanisms for consumer/producers of a public good: the Nash Bargaining Solution (NBS) and the Exchange-Matching-Lindahl (EML) solution, where each agent specifies her demand for and supply of the public good according to her personal exchange rate. Both mechanisms are Pareto-efficient. EML is equivalent to matching. In our specific model with linear or quadratic benefits and quadratic costs, EML and NBS are equivalent when there are two agents. With more than two agents, the high-benefit/low-cost agents are better off under EML. We also analyze outsourcing, where agent i can pay agent j to produce the amount that agent i promised to contribute. In our specific model, payments from high-cost to low-cost agents (and from high-benefit to low-benefit agents) are (usually) lower in EML than in NBS.

Suggested Citation

  • Dijkstra, Bouwe R. & Nentjes, Andries, 2020. "Pareto-Efficient Solutions for Shared Public Good Provision: Nash Bargaining versus Exchange-Matching-Lindahl," Resource and Energy Economics, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:resene:v:61:y:2020:i:c:s0928765519302404
    DOI: 10.1016/j.reseneeco.2020.101179
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    More about this item

    Keywords

    Nash bargaining solution; Exchange; matching; Lindahl mechanism; public goods; outsourcing;
    All these keywords.

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q59 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Other

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