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Correlated Equilibrium and the Pricing of Public Goods

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  • Ostroy, Joseph
  • Song, Joon

Abstract

Lindahl equilibrium is an application of price-taking behavior to achieve efficiency in the allocation of public goods. Such an equilibrium requires individuals to be strategically naive, i.e., Lindahl equilibrium is not incentive compatible. Correlated equilibrium is defined precisely to take account of strategic behavior and incentive compatibility. Using the duality theory of linear programming, we show that these two seemingly disparate notions can be combined to give a public goods, Lindahl pricing characterization of efficient correlated equilibria. We also show that monopoly theory can be used to characterize inefficient correlated equilibria.

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  • Ostroy, Joseph & Song, Joon, 2006. "Correlated Equilibrium and the Pricing of Public Goods," Economics Discussion Papers 8905, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:8905
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    1. Roth,Alvin E. (ed.), 1989. "The Shapley Value," Cambridge Books, Cambridge University Press, number 9780521361774, January.
    2. Aumann, Robert J., 1974. "Subjectivity and correlation in randomized strategies," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 67-96, March.
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