Is There a Case for Public Provision of Private Goods If Preferences are Heterogeneous? An Example with Day Care

21 Pages Posted: 13 May 2003

See all articles by Soren Blomquist

Soren Blomquist

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Vidar Christiansen

University of Oslo - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2003

Abstract

A strong case for public provision of certain private goods has been established for an economy in which individuals have homogeneous preferences but differ in skill levels. There has been a critique of this model/mechanism arguing that heterogeneous preferences at a given skill level would invalidate the mechanism, implying that public provision of private goods is merely of theoretical, not of practical interest. The argument is that if the public provision level is set so as to fit the low skill person with a high preference for the publicly provided good, the low skill person with a low preference for the good comes out worse than in a system without public provision. In this paper we take this critique seriously and investigate if a public provision scheme can be constructed so that we obtain a strict Pareto improvement when going from a pure tax/transfer system to the public provision scheme even if preferences are heterogeneous. We find that heterogeneous preferences do not invalidate the benefits of publicly provided private goods. We also characterise the optimum tax and public provision policy.

Keywords: Public Provision, Private Goods, In-kind Transfer, Heterogeneous Preferences, Day Care

JEL Classification: H21, H42, I38

Suggested Citation

Blomquist, Soren and Christiansen, Vidar, Is There a Case for Public Provision of Private Goods If Preferences are Heterogeneous? An Example with Day Care (May 2003). Available at SSRN: https://ssrn.com/abstract=406980 or http://dx.doi.org/10.2139/ssrn.406980

Soren Blomquist (Contact Author)

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden
+46 18 471 1102 (Phone)
+46 18 471 1478 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Vidar Christiansen

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
011-47-22-855121 (Phone)
011-47-22-855035 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de