The Lindahl mechanism works like this - Tell each individual that they will pay

Question

The Lindahl mechanism works like this

- Tell each individual that they will pay an individual ”tax price” as a percentage of the cost per unit of supplying a public good.

- Have each individual vote on the number of units they wish to have supplied.

- Those individuals who vote for more than the average have their tax prices raised those who vote for less have their tax prices lowered.

- Repeat this process as many times as necessary until all individuals vote for the same level of provision of the good. This is the Lindahl Equilibrium.

Would the Lindahl mechanism lead to an efficient allocation if the public good was an impure

public good? Brieáy give your reasoning

Explanation / Answer

Impure public goods are partially rivalus in the sense that they include congestion cost. They live in between the public goods and private goods and are not pure public goods because of congestion cost. Common property resources and club goods are examples of impure public goods.

Samuelson has described in lindahl pricing as pseudo pricing and Lindahl equilibrium as pseudo equilibrium. This is because the equilibrium in case of impure public good is not able to extract the true willingness to pay by the people. This implies that the optimal pricing is too low.

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