ipe.pptVIP

Local Public Goods Assume a population of H that allocate between two localities With population h in a locality income is a decreasing function M(h) Cost of the public good is G/h Utility is U = U(M(h) – G/h, G) Assume locality chooses G optimally given h so hUG/Ux = 1 Local Public Goods Fig. 6.5 assumes U(h) increases then decreases and U(H) U(0) Five potential equilibria a, b, c, d, e c is stable, b and d unstable a and e are stable but inefficient An inefficient equilibrium may be achieved Figure 6.6: Stability of the symmetric equilibrium Local Public Goods Fig. 6.7 has efficient s