Implementing Lindahl allocations in a warm-glow economy

Abstract

We provide a mechanism, the Nash equilibria of which coincide with the Lindahl allocations with two personalized prices in an economy that may display warm-glow preferences. The traditional techniques in implementing Lindahl allocations crucially depend on one Lindahl price for each consumer. The novel contribution of our mechanism is that it offers a construction of two personalized prices for each consumer, their individual contributions and the corresponding tax rules that align consumers’ incentives to restore efficiency. Our construction has potential applications to efficient provision of public goods in networks, which would require multiple Lindahl prices.