SFB 303 Discussion Paper No. A - 282
Author: Weber, Shlomo, and Hans Wiesmeth
Title: An Equivalence Result for the Core of an Economy with a
Public Good
Abstract: The central result of this paper is a refinement of an
equivalence theorem in Mas-Colell (1980) for the core of a
finite economy with a public good. It is shown that an
allocation belongs to the core if and only if it is a cost
share equilibrium. A further characterization of core
elements which can be supported by a strictly monotonic cost
sharing method is also provided. An application of these
results allows a complete characterization of core
allocations which can be supported by a linear cost share
system. The set of linear cost share equilibria, which are
in one-to-one correspondence with the Lindahl-Foley
equilibria, is determined by uniform upper and lower bounds
on the elasticity of substitution for the public good. In
contrast to cost share equilibria, Lindahl-Foley equilibria
are based on profit maximization.
Keywords: Microeconomic theory, Fiscal theory
JEL-Classification-Number: 022, 321
Creation-Date: February 1990
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