Demand for public good as a correspondence of cost shares

A. van den Nouweland ()
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A. van den Nouweland: University of Oregon

Economic Theory Bulletin, 2019, vol. 7, issue 1, No 12, 155-164

Abstract: Abstract In this paper, I study optimal demand by an agent who faces a budget constraint that may not be linear. This situation arises in public good economies in which the production of the public good does not exhibit constant returns to scale and in which each agent is responsible for a fixed proportion of the cost of whatever quantity of the public good is provided. I define an agent’s demand for public good as a correspondence of the cost share so that I include economies in which production of public good exhibits constant returns to scale or the public good is perfectly substitutable by private good. I demonstrate that an agent’s demand for the public good decreases as their share of the costs increases and thus extend the law of demand beyond a setting in which agents pay personalized prices for the public good.

Keywords: Cost shares; Public good; Law of demand; Giffen good (search for similar items in EconPapers)
JEL-codes: C6 D7 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s40505-018-0150-y

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