The provision of impure public goods in a non-competitive market

Abstract

The paper deals with the provision of impure public goods in a non-competitive market where two firms, a public and a private one, produce a differentiated product and have a degree of monopoly power. The characteristic of the industry output, having a private (appropriable) and a public (collective) element, is represented as a positive externality produced by total consumption (total industry output) on each consumer. The aim of the paper is twofold: we show how to model impure public goods in monopolistic competitive markets within a computable general equilibrium model and we give important insights into second best policies in these markets where subsidies to correct for positive externalities should be given to firms that, given the imperfect competitive nature of the market, apply a price higher than their marginal cost.