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Private Provision of Public Goods: Neutrality and Wealth-Dependent Preferences

Author

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  • Oskar Nupia

Abstract

Several authors have investigated the bounds of the so-called neutrality theorem where public goods are privately provided. Following this line of analysis, I investigate further in this paper the bounds of this result. I concentrate on an unexplored case in the existing literature- namely that where individual preferences for a public good are affected by respective levels of individual wealth. I prove that under such circumstances, the neutrality theorem no longer holds. More appealing, I discuss the conditions under which a redistribution of wealth might improve efficiency in the aggregate provision of public goods. Interestingly, we find that a redistribution of wealth from individuals who have a low valuation for public goods to those who have a high valuation for public goods does not necessarily increase its aggregate provision.

Suggested Citation

  • Oskar Nupia, 2012. "Private Provision of Public Goods: Neutrality and Wealth-Dependent Preferences," Documentos CEDE 9801, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:009801
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    Keywords

    Public goods; private provision; neutrality theorem; income distribution;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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