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Demand for public good as a correspondence of cost shares

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  • A. van den Nouweland

    (University of Oregon)

Abstract

In this paper, I study optimal demand by an agent who faces a budget constraint that may not be linear. This situation arises in public good economies in which the production of the public good does not exhibit constant returns to scale and in which each agent is responsible for a fixed proportion of the cost of whatever quantity of the public good is provided. I define an agent’s demand for public good as a correspondence of the cost share so that I include economies in which production of public good exhibits constant returns to scale or the public good is perfectly substitutable by private good. I demonstrate that an agent’s demand for the public good decreases as their share of the costs increases and thus extend the law of demand beyond a setting in which agents pay personalized prices for the public good.

Suggested Citation

  • A. van den Nouweland, 2019. "Demand for public good as a correspondence of cost shares," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(1), pages 155-164, May.
    • Handle: RePEc:spr:etbull:v:7:y:2019:i:1:d:10.1007_s40505-018-0150-y
    DOI: 10.1007/s40505-018-0150-y
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    References listed on IDEAS

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    1. Constanze Binder & Giulio Codognato & Miriam Teschl & Yongsheng Xu, 2015. "Individual and Collective Choice and Social Welfare," Post-Print hal-01457320, HAL.
    2. Robert T. Jensen & Nolan H. Miller, 2008. "Giffen Behavior and Subsistence Consumption," American Economic Review, American Economic Association, vol. 98(4), pages 1553-1577, September.
    3. Constanze Binder & Giulio Codognato & Miriam Teschl & Yongsheng Xu (ed.), 2015. "Individual and Collective Choice and Social Welfare," Studies in Choice and Welfare, Springer, edition 127, number 978-3-662-46439-7, December.
    4. van den Nouweland, A. & Wooders, M., 2017. "Existence of share equilibrium in symmetric local public good economies," Mathematical Social Sciences, Elsevier, vol. 89(C), pages 50-60.
    5. van den Nouweland, Anne & Wooders, Myrna, 2011. "Share equilibrium in local public good economies," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 376-381.
    6. Anne Nouweland, 2015. "Lindahl and Equilibrium," Studies in Choice and Welfare, in: Constanze Binder & Giulio Codognato & Miriam Teschl & Yongsheng Xu (ed.), Individual and Collective Choice and Social Welfare, edition 127, pages 335-362, Springer.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cost shares; Public good; Law of demand; Giffen good;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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