On the distributional implications of collective provision of public goods

Our analysis of the welfare implications of a comparison between independent adjustment and the Lindahl solution to the public goods problem suggests that especially for small or medium sized groups the inefficiency of independent adjustment may not be sufficient cause for collective action if that action cannot be combined with redistribution. From a normative position the question of proceeding with such redistribution is hardly obvious. Unless the status quo has some legitimacy, economists are often willing to support efficient but nonsuperior moves. For example, we do not require that a monopolist move to a Pareto superior position after antitrust proceedings. Rather we commonly identify his gains as ill-gotten. While it is important that those who may suffer from the move to a Lindahl-type solution are also likely to be poor, it is hardly obvious that the appropriate extent of redistribution is that dictated by the peculiarities of the independent adjustment equilibrium. Despite these provisos the argument makes something of a dent in the simple view of the market-failure of independent adjustment and the Pareto optimality of the Lindhal solution. Jerimias and Zardkoohi have already pointed out that independent adjustment may have certain attractive characteristics from the equity point of view. Our discussion clearly suggests that not only will the Lindahl solution not possess those characteristics, i.e., not only will it have a greater degree of inequality, but also that some individuals may actually be worse off. Finally it is interesting to note that from a practical point of view redistribution may be necessary to guarantee participation if collective action is to be accomplished voluntarily. For small and medium sized groups voluntarily motivated action is likely to be the only available course. These are also the groups most likely to require redistribution to guarantee that the Lindahl position is Pareto superior. Copyright Martinus Nijhoff Social Sciences Division 1978