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Voluntary Control of Public Bad Is Independent of Aggregate Wealth: The Second Neutrality Theorem

Hirofumi Shibata

Public Finance = Finances publiques, 1998, vol. 53, issue 3-4, 269-84

Abstract: This paper proves that the Nash equilibrium quantity of a negative public good ("public bad") is independent not only of the wealth distribution of the contributors to the public good supplied with the aim of reducing the effects of that negative good but also, in spite of a claim made by some authors in the conventional literature, of their aggregate wealth under plausible assumptions. It also shows that the welfare of each contributor at the equilibrium is independent of the distribution as well as the aggregate amount of the wealth of the contributors except for the situation where income-earning activities are endogenously determined. The paper suggests that given the laws of thermodynamics, inter-community lump-sum transfers of wealth may improve neither the welfare of individuals nor the environmental quality of the receiving community.

Date: 1998
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Handle: RePEc:pfi:pubfin:v:53:y:1998:i:3-4:p:269-84