Ünal Zenginobuz

Subscription equilibrium with production: Non-neutrality and constrained suboptimality

We study a general equilibrium model with a non-profit firm producing a public good using private goods as inputs which are financed by voluntary contributions (subscriptions) of households. We analyze policy interventions that increase the public good level at subscription equilibria, and show that some of the standard results of the neutrality literature do not survive in our model with many private goods and relative price effects allowed. First, we show that a redistribution away from a contributor or even a decrease in the total wealth of all contributors (while the contributing set of agents remains intact) can lead to an increase in the provided level of public good. Moreover, we prove that increasing the production of public good is neither a sufficient nor a necessary condition to increase all householdsʼ welfare. Finally, we present conditions under which, for a generic set of economies, well chosen interventions will Pareto improve upon a given subscription equilibrium outcome. As a consequence, a general non-neutrality result in terms of utilities holds even if all households are contributors.

Pareto Improving Interventions in a General Equilibrium Model with Private Provision of Public Goods

Most of the literature on government intervention in models of voluntary public goods supply focuses on interventions that increase the total level of a public good, which is considered to be typically underprovided. However, an intervention that is successful in increasing the public good level need not benefit everyone. In this paper we take a direct approach to welfare properties of voluntary provision equilibria in a full blown general equilibrium model with public goods and study interventions that have the goal of Pareto improving on the voluntary provision outcome. Towards this end, we study a model with many private goods and non-linear production technology for the public good, and hence allow for relative price effects to serve as a powerful channel of intervention. In this setup we show that Pareto improving interventions generally do exist. In particular, direct government provision financed by “small” , or “local” , lump-sum taxes can be used generically to Pareto improve upon the voluntary provision outcome.