Economies with public projects: theory and experimental evidence

• Main Author: Hahn, Kyungdong
• Other Authors: Economics
• Format: Others
• Language: en
• Published: Virginia Tech 2014
• Subjects: multiple public projects; LD5655.V856 1995.H346
• Online Access: http://hdl.handle.net/10919/38192; http://scholar.lib.vt.edu/theses/available/etd-06062008-162457/

This dissertation concerns economies with public projects. Public projects are a special case of public goods which size is not necessarily measured by units and which are either built at some fixed cost or not built at all. Our theoretical studies of public projects are based on personalized prices for access to the public project rather than personalized prices for the units consumed of public goods as in the literature on Lindahl equilibrium. Furthermore, the private provision of public projects is experimentally investigated with a double oral auction market for assets that are required in order to produce public projects. The first paper (Chapter 2), "Economies with Multiple Public Projects" (joint work with Robert P. Gilles), discusses an economy with multiple public projects each separately produced by a distinct provider operating under a different cost function. In an economy with the non-Euclidean representation of multiple public projects space we show that the two welfare theorems hold for valuation equilibria in which a public project is financed through a (non-linear) system of taxes or subsidies, called a valuation system, and that the core allocations are equivalent to the set of valuation equilibria with a nonnegative valuation system. Furthermore, if a Euclidean space is used to describe the public projects specified to the standard case of public goods, every Pareto efficient allocation is supported as an affine valuation equilibrium which is characterized with a price per unit of public good and a lump sum tax or subsidy. The second paper (Chapter 3), "Market Provision of Public Projects: Some Experimental Results" (joint work with Sheryl B. Ball), presents experimental evidence on the provision of a public project which is produced by a coalition of economic agents in the population. A double oral auction asset market is employed as the trading institution for assets that are required in order to produce the public project. The experimental environments differ by rules about who can produce the project, information about the benefits to the other agents of the project, and parameters which include the symmetry and size of individual valuations of the assets and the magnitude of social benefits from the project. We find that individually rational client outcomes which are identified by a theoretical analysis based on Chapter 2, are more likely in some environments than others, and suggest that these findings may have implications for the usefulness of this mechanism for public project provision. The third paper (Chapter 4), "Economies with Costly Trade Links," is an application of the model of economies with public projects to the case of an economy with endogenous formation of costly trade links between industries in different sectors of the economy. The trade links reduce transaction costs, but inevitably incur set-up costs. We prove that the two welfare theorems hold for trade equilibria in which each trade link is separately financed with budget neutrality as well as profit maximization. Furthermore, we introduce an industry-wise efficiency concept which requires that no industry can insure itself a better outcome for the industry itself by changing the industry's trade structure, and show that Pareto efficiency strictly implies industry-wide efficiency. The fourth paper (Chapter 5), "Efficiency and Egalitarian-Equivalence in Economies with a Public Project" (joint work with Robert P. Gilles), is an application of the model of economies with public projects to the equity concept of egalitarian-equivalence. An allocation is egalitarian-equivalent if there exists a fixed commodity bundle (the same for each agent) that is considered by each agent to be indifferent to the bundle that he/she actually gets in the allocation under consideration. A public project is also produced by a coalition of economic agents as in Chapter 3. We prove that there exist efficient egalitarian-equivalent allocations, which are not equivalent to the set of valuation equilibria and also may not be in the core. === Ph. D.