Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2004:6: Decentralising Public Goods Production

Michael Lundholm ()
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Michael Lundholm: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: Decentralised decisions, to a bureau with a given budget, about the production of public goods is analysed within a general equilibrium model with a representative agent and no pure profits. It is shown that decentralisation (i) does not necessarily imply aggregate production effciency and (ii) need not be optimal even if all public goods are neutral. Also, cost benefit criteria are derived and the marginal cost of public funds is characterised.

Keywords: Cost benefit criteria; marginal cost of public funds; production effciency; delegation; decentralisation.

JEL-codes: H21; H41; H43

21 pages, May 24, 2004

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