Coalitional instability of the distributive Lindahl equilibrium

Summary

Bergstrom [3] has showed that the Lindahlian approach to the analysis of public goods may also be used to analyze a model of wide-spread externalities in which agents have preferences defined on allocations rather than on individual commodity bundles. He has provided versions of the first and second welfare theorem for adistributive Lindahl equilibrium and also presented sufficient conditions for its existence. However, we shall show that, in contrast to Foley's [4] result on the core stability of a Lindahl equilibrium, a distributive Lindahl equilibrium need not satisfy coalitional stability. We will provide a robust example in which the unique, distributive Lindahl equilibrium does not belong to the α-core defined either as in Scarf [11] or as in Yannelis [12].

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I would like to thank F. Canova, R. Serrano, M. Spagat, R. Vohra at Brown University, P. C. Padoan at University of Rome and an anonymous referee for their comments. I am also grateful to the participants at the Third Annual MeetingColloquia on Economic Research at I.G.I.E.R. in Milan, Italy, and to the participants at the Citibank Workshop in Economic Theory at Brown University.

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Asdrubali, P. Coalitional instability of the distributive Lindahl equilibrium. Econ Theory 8, 565–575 (1996). https://doi.org/10.1007/BF01213510

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JEL classification numbers

  • D51
  • D62
  • D64