Comparing the first best and the second best provision of a club good; an example

2009-12-08T16:22:05Z (GMT) by Clive D. Fraser Ali Al-Nowaihi
Excludable and congestible shared goods − club goods (e.g., internet access facilities) − are more prevalent than Samuelsonian public goods. Our example shows that, unlike the usual presumption with pure public goods, the optimal second−best supply of a club good might exceed its first−best level. We argue that this arises because user charges can be levied on club goods; the government need not impose distortionary taxes to finance them. Thus, the first and second best in a club economy differ mainly because informational constraints prevent the government achieving the right income distribution in the latter.

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