Voluntary Contribution of Public Goods and Income Equality

Abstract

If we consider the models of voluntary contributions of public goods, a neutrality theorem holds. In this theorem, a small redistribution of incomes between contributors does not affect each agent's consumption in the equilibrium outcome. In contrast, a large redistribution of incomes changes the set of the contributors and each agent's consumption. Especially, redistributions that increase the aggregate income of the contributors necessarily increase the level of the public good in the equilibrium outcome. As a result, redistributions that increase the income of the contributors raise social welfare. Based on this result, many existing studies have concluded that inequality is praised. In this paper, I prove that such redistribution does not produce Pareto improvement in the case of two agents. But, in the case of more than three agents, there is a redistribution that produces Pareto improvement. I derive the necessary and sufficient condition for Pareto improvement. In addition, we construct the economy where efficiency consists with equality. Moreover, assuming that each agent's utility function is Cobb=Douglas function, I derive optimal income distributions. Then, we analyze each agent's consumption levels and utility in the equilibrium without comparison of utilities from the viewpoint that is near to the criterion of Rawls. Some of my results are as follows: In most cases, it is justified to transfer to the most disadvantaged agent; in some cases, transferring to the other agent is more desirable from the same viewpoint; transferring to the most disadvantaged agent may improves the most advantaged agent.



Author Information
Tetsuro Okazaki, Chiba University of Commerce, Japan

Paper Information
Conference: ACSS2013
Stream: Social Sciences

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