The Lindahl solution for economies with public goods

Abstract

Interest in the problem of public goods has grown markedly over the two decades since the publication of Samuelson’s seminal paper [Samuelson (1954)]. In particular, a significant volume of recent (often highly mathematical) research has been devoted to the task of incorporating public goods into the general equilibrium theory of price and output determination. The Lindahl equilibrium has figured especially prominently in this literature as a solution concept for public goods economies. In this expository paper, the theory of the Lindahl equilibrium is surveyed and a number of the recent contributions to this literature are examined with the objective of introducing this active area of research to those working in other areas of public economics. ’ The paper is organized in three sections. In the first, the nature and history of the Lindahl solution is sketched and a formal definition is offered for the Lindahl equilibrium. The second and third sections are devoted to an examination of the Lindahl equilibrium as a proposed solution concept. The problem of determining whether an equilibrium exists is the subject matter of section 11, while the possibility of achieving and maintaining a Lindahl equilibrium is discussed in section III in terms of adjustment mechanisms for finding an equilibrium, the relationship of the core and the Lindahl allocations and the incentive properties of the Lindahl solution.