#youcanlearneconomics
#ECONOMICS
The basic idea of a market solution to the problem of providing public goods
is due to Erik Lindahl (1919). Lindahl equilibrium attempts to solve the problem of determining the levels of public goods to be provided and their financing by adapting the price system in a way that maintains its central feature of an efficient allocation being the outcome of voluntary market activities within the context of private property rights. Instead of some political choice mechanism and coercive taxation, under the Lindahl approach, each individual faces personalized prices at which he or she may buy total amounts of public goods. In equilibrium, these prices are such that everyone demands the same levels of public goods and thus agrees on the amounts of public goods that should be provided. Since each individual buys and consumes the total production of public goods, the price to producers is the sum of the prices paid by individuals, and equilibrium involves the supply at these prices equalling the common demand. Thus, Lindahl equilibrium brings unanimity about the level of public goods provision, with costs being shared in proportion to (marginal) benefits.
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