Exclusion and moral hazard. The case of identical demand

Emilson C.D. Silva; Charles M. Kahn

doi:10.1016/0047-2727(93)90021-K

Exclusion and moral hazard. The case of identical demand

Emilson C.D. Silva, Charles M. Kahn

Finance

Research output: Contribution to journal › Article › peer-review

Abstract

This paper examines the problem of costly exclusion of individuals from a public good. Previous analyses of exclusion have treated it as solely a question of technologies; in our analysis exclusion depends on technology and incentives. In this paper providers of the good design a mechanism to provide an optimal level of deterrence to free riders. If individuals are heterogeneous optimal deterrence may allow some free riders. We examine the effect of costs of exclusion on the Samuelson condition for optimal provision, and see that the desire to deter free riding leads to underprovision of the good irrespective of the degree of rivalry of the good.

Original language	English (US)
Pages (from-to)	217-235
Number of pages	19
Journal	Journal of Public Economics
Volume	52
Issue number	2
DOIs	https://doi.org/10.1016/0047-2727(93)90021-K
State	Published - Sep 1993

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/0047-2727(93)90021-K

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title = "Exclusion and moral hazard. The case of identical demand",

abstract = "This paper examines the problem of costly exclusion of individuals from a public good. Previous analyses of exclusion have treated it as solely a question of technologies; in our analysis exclusion depends on technology and incentives. In this paper providers of the good design a mechanism to provide an optimal level of deterrence to free riders. If individuals are heterogeneous optimal deterrence may allow some free riders. We examine the effect of costs of exclusion on the Samuelson condition for optimal provision, and see that the desire to deter free riding leads to underprovision of the good irrespective of the degree of rivalry of the good.",

author = "Silva, {Emilson C.D.} and Kahn, {Charles M.}",

note = "Funding Information: Correspondence to: CM. Kahn, Department of Economics, University of Illinois, Box 111, 330 Commerce W. Building, 1206 South 6th Street, Champaign, IL 61820, USA. *We thank Jan Brueckner, Myrna Wooders, two referees of this journal and participants in the Public Finance workshop of the University of Illinois for useful comments. We also thank Christine M. Silva for typing assistance. Kahn{\textquoteright}s research was funded by NSF grant SES 8821723 and Silva{\textquoteright}s research was funded by CNPq (Conselho National de Desenvolvimento Cientifico e Tecnolbgico-Brazil) scholarship 200883/87.9.",

year = "1993",

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doi = "10.1016/0047-2727(93)90021-K",

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volume = "52",

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AU - Silva, Emilson C.D.

AU - Kahn, Charles M.

N1 - Funding Information: Correspondence to: CM. Kahn, Department of Economics, University of Illinois, Box 111, 330 Commerce W. Building, 1206 South 6th Street, Champaign, IL 61820, USA. *We thank Jan Brueckner, Myrna Wooders, two referees of this journal and participants in the Public Finance workshop of the University of Illinois for useful comments. We also thank Christine M. Silva for typing assistance. Kahn’s research was funded by NSF grant SES 8821723 and Silva’s research was funded by CNPq (Conselho National de Desenvolvimento Cientifico e Tecnolbgico-Brazil) scholarship 200883/87.9.

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N2 - This paper examines the problem of costly exclusion of individuals from a public good. Previous analyses of exclusion have treated it as solely a question of technologies; in our analysis exclusion depends on technology and incentives. In this paper providers of the good design a mechanism to provide an optimal level of deterrence to free riders. If individuals are heterogeneous optimal deterrence may allow some free riders. We examine the effect of costs of exclusion on the Samuelson condition for optimal provision, and see that the desire to deter free riding leads to underprovision of the good irrespective of the degree of rivalry of the good.

AB - This paper examines the problem of costly exclusion of individuals from a public good. Previous analyses of exclusion have treated it as solely a question of technologies; in our analysis exclusion depends on technology and incentives. In this paper providers of the good design a mechanism to provide an optimal level of deterrence to free riders. If individuals are heterogeneous optimal deterrence may allow some free riders. We examine the effect of costs of exclusion on the Samuelson condition for optimal provision, and see that the desire to deter free riding leads to underprovision of the good irrespective of the degree of rivalry of the good.

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Exclusion and moral hazard. The case of identical demand

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