A Theory of Local Public Goods Provision with Congestion: Destroy the Public Good to Produce the Public Good?

Abstract

We explore the old but highly topical question of the efficient provision of public goods: could the laisser-faire lead to efficiency? Or do we need government to provide these goods? Some authors, Stiglitz (1982), Lindsay and Dougan (2013) among others, discussed some conditions under which the laisser-faire give a near optimal provision. In this paper, we consider the public goods that are subject to congestion, and basing on empirical facts in Africa, we revisit the agents' preferences regarding the use of public goods. Indeed, we could argue that the utility function does not have the same properties over its set of variation. Specifically, it may exist a threshold defining a level of public goods below which free riding is in nobody's interest. With such a utility function, we show that the laisser-faire provision amount and the social optimum coincide. At this equilibrium point, the marginal utility of the private good is higher than the marginal utility of the public good. As policy implications, the best way to incite people to voluntarily contribute to the public good provision is to destroy the public good, not the private good. In other words, any policy of eviction from public spaces may not be effective.