Efficient provision of public goods with endogenous redistribution (Q1762927)

The paper a balanced mechanism that is capable of implementing in Nash equilibrium all the Pareto-efficient individually rational allocations for an economy with public goods. The mechanism assumes that the government chooses a set of weights directly related to the Lindahl prices corresponding to the Pareto-efficient allocation to be implemented. The mechanism then guarantees that initial endowments are re-allocated so that the chosen vector of Lindahl prices is indeed a Lindahl equilibrium, and implements the corresponding Lindahl allocation. Besides being balanced, the mechanism proposed is sufficiently `simple': each agent has to declare a desired increase in the amount of public good and a vector of redistributive transfers of initial endowments (across other agents). Since all Pareto-efficient individually rational allocations are implementable in the model, the choice of Lidahl prices becomes a purely distributional problem. The use of the mechanism proposed could open the way for a benevolent government to attempt to aggregate social preferences over the distribution of welfare to guide its choice of Lindahl prices. In particular, a variety of voting mechanisms could yield outcomes that are deemed desirable according to predefined criteria. Thus, the mechanism is able to deliver the corresponding efficient allocation of resources in the economy.