FREE RIDING AND THE INEFFICIENCY OF THE PRIVATE PRODUCTION OF PURE PUBLIC-GOODS

The traditional essentially Ricardian model of the voluntary productio n of pure public goods is generalized to comprise any number of privat e and public goods, factors of production, and households. The main no vel feature of our approach is to use a household production model, Th e efficiency losses from the underproduction of pure public goods in a Cournot-Nash equilibrium are related to the scale of the economy (num ber of households) and the extent of free riding (non-contributions of one or more households to one or more public goods). It is also shown that significant welfare gains can be achieved by a reallocation of f actors between public goods alone. Globally applicable, necessary and sufficient conditions for welfare improvements are derived and interpr eted.