Abstract
In this paper, we apply the framework of a public bad economy with a finite set of economic agents and a finite set of consumption commodities. The pollution of an agent is emitted into the air while consuming his consumption goods. A linear public bad economy model with a single private good had been introduced in Shitovitz and Spiegel (Econ Theory 22(1):17–31, 2003) and here we reconsider its extension to finite number of private goods and prove existence of a core ‘trading’ allocation (Perets et al. J Math Econ 48(3):163–169, 2012) that Pareto dominates the Nash allocation. This mathematical model embodies the restriction of consumption by all polluting agents, to decrease the amount of the public bad, affecting the whole economy, worldwide. Note specifically that the Lindahl allocation may not Pareto dominate the Nash allocation in some finite economy, in contrast to well-known asymptotic results.
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