NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Public Goods in Open Economies with Heterogeneous Individuals

Joseph E. Stiglitz

NBER Working Paper No. 802 (Also Reprint No. r0433)
Issued in November 1983
NBER Program(s):   PE

This paper formulates a simple model of "perfect community competition." It is shown that (1) the equilibrium is Pareto optimal; (2) communities will, in general, be heterogeneous; not all individuals will have the same tastes; but (3) all individuals of a given skill within the community will have identical preferences; (4) in spite of the heterogeneity of tastes, there is complete unanimity with respect to tax and expenditure policy, and there is no scope for redistribution at the local level; (5) under certain circumstances, everyone's expected utility can be increased by introducing a particular kind of unequal treatment of individuals who are otherwise identical with respect to tastes and production characteristics; (6) when there is not "perfect community competition, " the equilibrium will, in general, not be Pareto optimal, and benefit taxation may be desirable.

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Published: Stiglitz, Joseph E. "Public Goods in Open Economies with Heterogeneous Individuals." Locational Analysis of Public Facilities, edited by J.F. Thisse & H.G. Zoller, North Holland Publishing Company, (1983), pp. 55-78.

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