Economics 1021A/B Study Guide - Quiz Guide: Erik Lindahl, Lindahl Tax, Free Rider Problem

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: bruce hammond

Document Summary

How do governments do what they do: unanimous consent on public goods levels. Lindahl pricing ( erik lindahl 1919): a system by which individuals honestly report their willingness to pay for a a next unit of oublic good an dthe government aggregate those to measure overall social bebefit from that good. The government will finance the good with the amoung of wtp. Government comares marginal social benefit with the marginl social costs related tot he public good! One key feature of public goods: it must be provided in equal quantities to each individual. Also the effective level of public goof provision (social marginal benefit equals social marginal costs) Lindahls pricing corresponds to the concept of benefit taxation: occurs when individuals are being taxed for a public good according their vauation of the benefit their receive from the good. Information: preference aggregation problem, government not able to precedure lindahls pricing in reality (too complex with many people)