Why Praise Inequality? Public Good Provision, Income Distribution and Social Welfare

Indraneel Dasgupta ()

No 3988, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We consider a two-person Cournot game of voluntary contributions to a public good with identical individual preferences, and examine equilibrium aggregate welfare under a separable, symmetric and concave social welfare function. Assuming the public good is pure, Itaya, de Meza and Myles (Econ. Letters, 57: 289-296; 1997) have shown that maximization of social welfare precludes income equality in this setting. We show that their case breaks down when the public good is impure: there exist individual preferences under which maximization of social welfare necessitates exact income equalization. Even if the public good is pure, any given, positive level of income inequality can be shown to be socially excessive by suitably specifying individual preferences. Thus, sans knowledge of individual preferences, one cannot reject the claim that a marginal redistribution from the rich to the poor will improve social welfare, regardless of how small inequality is in the status quo.

Keywords: public goods; voluntary provision; income distribution; inequality; social welfare (search for similar items in EconPapers)
JEL-codes: D31 D63 D74 Z13 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2009-01
New Economics Papers: this item is included in nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Why Praise Inequality? Public Good Provision, Income Distribution and Social Welfare (2008)
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