An essay on some aspects of the economic theory of public goods

Abstract

The first part of this thesis is a discussion about the core and public goods, as well as a review of the relevant literature, which is mainly aimed to show the progression of the field. Part 2 deals with the game theoretic approach to economic behaviour: it provides -beside other things a discussion of the notion of domination that offers a clear explanation of the relation between the core and stable sets. I elaborate the idea that the usual characteristic function is not adequate to describe the process of coalition formation: the presence of public goods makes this task impossible. Informally, it is based on excessively pessimistic assumptions about the behaviour of the complementary coalition. Moreover, it seems to pay too much attention to the simple dialectic between one coalition and its complement: a more complex structure of coalitions is typically stable in the real world and 1 argue that the outcome described by a game in characteristic form -or some alternative description- should be able to explain it fully. Part 3 contains some basic notions on taxes and analyse the properties of tax allocation systems that have been proposed in the literature. Moreover, it studies the problem of voting as a way to provide legitimated choices of tax systems. In Part 4 1 am concerned with a particular allocation mechanism, that finds its theoretical environment in the literature on collective choices: the determination of the level and of the composition of public good bundles by means of voting systems. I consider existing voting models, and in particular, the relevance of the needed restrictions on the choice domain and on the distribution of preferences to assure the existence of an equilibrium outcome. I also prove that there is a simple way to avoid the non-egalitarian characteristics of the majority rule without altering its "good" properties. Since its presentation by Bowen (1943), the median voter theorem influenced many researches on spatial models of the electoral process. In Part 5 I give a slight generalization of the original theorem. Part 6 is devoted to the study of strategic voting: its main outcome is that tee act of voting strategically is very difficult and information-demanding in all relevant situations. The properties of the Borda rule are studied and a modification is proposed in order to further its stability against strategic actions. From my point of view the quite massive adjoined bibliography deserves the right to be presented as Part 8: it lists most of the relevant literature in the field of public economies appeared before 1993.