Lindahl Pricing, Nonrival Infrastructure, and Endogenous Growth

Dipankar Dasgupta

Journal of Public Economic Theory, 2001, vol. 3, issue 4, 413-430

Abstract: The paper constructs a model of endogenous growth where infrastructure is an accumulable stock generating a nonrival input service. A typical market economy cannot attain the socially optimum steady state path, since nonrivalry precludes competitive pricing of infrastructure. However, there exist agent specific prices for the infrastructural service, a price for the infrastructural stock, a rate of interest, and a subsidy for the representative household that can sustain the optimal path as a dynamic Lindahl equilibrium. The rates of return from physical and infrastructural capital equal the rate of interest. Investment programs are socially optimum. The government's budget is balanced.

Date: 2001
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