SFB 303 Discussion Paper No. A - 326

Author: Ruys, Pieter H. M., Gerard van der Laan, and Dolf J. J. Talman
Title: Signaling devices for the supply of semi-public goods
Abstract: This paper deals with the concept of a semi-public good. These semi- public goods are characterized by the fact that their use is being supplemented by specific private goods. The consumption of this complementary private good is constrained by an individual quantity constraint for each individual agent. The quantity constraints depend on the level of the semi-public good. For instance, car driving is limited by the level of the road system. This approach allows us to design economic institutions which carry out price discrimination among users of a semi-public good. People who are seriously hampered by too small a provision of a public good, because it constrains their use of the private commodity, are willing to pay a mark-up on the price for the latter one if this mark-up is spent for expanding the provision of the public good. In the model the availability of a public good is planned and organized by a central planner. The consumer's willingness to pay an individual mark-up on the price of a private commodity reflects his preferences for the availability of the public good. These mark-ups are collected by the private goods industry and transferred to the central planner in order to cover the costs of the public good infrastructure. This framework of a private industry and a central planner providing semi-public goods is called an industrial economy. The main issue of this paper is to prove the existence of an equilibrium in such an economy.
Creation-Date: January 1990
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