Summary
In the theory of economies with public goods one usually considers the case in which private goods are essential, i.e., each agent receives a fixed minimum level of utility if he consumes no private goods, irrespective of the public goods consumed. This paper develops the second welfare theorem for economies with public projects and possibly inessential private goods. As a corollary we also derive conditions under which valuation equilibria exist.
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hank Dolf Talman and an anonymous referee for many useful remarks and annotations of a previous draft of this paper.
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Diamantaras, D., Gilles, R.P. & Scotchmer, S. Decentralization of Pareto optima in economies with public projects, nonessential private goods and convex costs. Econ Theory 8, 555–564 (1996). https://doi.org/10.1007/BF01213509
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DOI: https://doi.org/10.1007/BF01213509