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Lecture%2018%20Public%20Goods%202

Lecture%2018%20Public%20Goods%202 - Public Goods 2...

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1 Public Goods 2 Economics 401 A u B u Nash Equilibrium Relative prices of the public good and the private good are fixed to one in equilibrium The budget sets adjust through contributions to public good by others not through prices! O G O A O B ω x A ω B ω The Inefficiency of Equilibrium In equilibrium there is an inefficiently low provision of public goods Sufferers of pollution will not buy enough permits The externality: Agent i does not take into account that Agent j benefits from his purchase of the public good A A is preferred by both Agents B u A u O G O A O B ω
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