Erik Lindahl’s Pricing Problem in a Two-Period Model

Abstract

This paper presents a new interpretation of Lindahl’s pricing problem. The methodology introduces a non-monetary economy, where consumer goods prices are determined endogenously, to show how the ex ante/ex post compatibility between supply and demand plans leads to situations of equilibrium and disequilibrium. Using a roundabout method of production where labour is the only input, I develop a model in two stages. In the first stage, labour, wages, and the interest rate are determined endogenously to establish an ex ante equilibrium. In the second stage, consumer goods prices are calculated to distinguish the ex post equilibrium/disequilibrium. This model aims to constitute a simplified reference to the pricing problem in the Stockholm School approach.