Bargaining over Public Goods

Authors


  • Julio Dávila, Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium and Paris School of Economics, Centre d'Economie de la Sorbonne, 106-112 Boulevard de l'Hopital, 75013 Paris, France (Julio.davila@uclouvain.be). Jan Eeckhout, Department of Economics, University of Pennsylvania, 160 McNeil Building, 3718 Locust Walk Philadelphia, PA 19104-6297, and Department of Economics, Universitat Pompeu Fabra, Ramon Trias Fargas, 25-27, 08005 Barcelona, Spain. César Martinelli, Centro de Investigación Económica, Instituto Tecnológico Autónomo de México, Camino Santa Teresa 930, 10700 México DF, México.

  • Julio Dávila gratefully acknowledges research funding as “Promoteur d'un M.I.S.-Mobilité Ulysse” from the Belgian F.R.S-FNRS.

Abstract

In a simple public good economy, we propose a natural bargaining procedure, the equilibria of which converge to Lindahl allocations as the cost of bargaining vanishes. The procedure splits the decision over the allocation in a decision about personalized prices and a decision about output levels for the public good. Since this procedure does not assume price-taking behavior, it provides a strategic foundation for the personalized taxes inherent in the Lindahl solution to the public goods problem.

Ancillary