Overview

Lindahl equilibrium


Show Summary Details

Quick Reference

A method for determining what quantity of a public good should be provided and how its cost should be allocated across consumers. The Lindahl equilibrium is obtained by announcing the share of the cost of the public good that each consumer must pay. The consumers respond by announcing the quantity of public good they want given the shares. The shares are adjusted until all consumers demand the same quantity of the public good—this is the Lindahl equilibrium. If consumers report their demands honestly the Lindahl equilibrium achieves a Pareto-efficient allocation. The theoretical weakness of the Lindahl equilibrium is that a consumer can gain by making a false announcement. The practical weakness is the determination of the equilibrium shares in a large population (where most shares would be close to zero). See also Samuelson rule.

Subjects: Economics.


Reference entries

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.