Marginal Cost and Marginal Benefit Relationship Peer Reviewed Articles

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• Published: eleven Jan 2016

The Social Marginal Price Bend and a Corner Solution of the Second-Best Level of Public Good Provision: A Review and an Extension

Swiss Journal of Economics and Statistics volume 152,pages 209–241 (2016)Cite this article

Summary

Assume that the individual appurtenances and the public good are weakly separable, the private goods are gross complements, and the private utility function is a homogeneous of degree one function with abiding elasticity of commutation. We demonstrate that, under commodity taxation, the social marginal cost curve of public good provision is initially upward sloping and somewhen becomes downwardly sloping. Moreover, the social marginal cost eventually falls below the private marginal cost. These unusual properties arise from a demand-shift effect: An increase in the revenue enhancement charge per unit raises the marginal willingness to pay for the public good since it pushes upward the unit toll of individual utility, hence making the public good more bonny than private goods. In other words, the supply of the public expert creates its ain demand when the funding to embrace product costs is raised through distortionary article taxes. It follows that there may exist three solutions to the first-order condition for the second-best problem: two of them are interior solutions and ane is a corner solution.

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Author information

Affiliations

1. Professor, Graduate Found of Industrial Economics, National Central Academy, No. 300, Chung-Ta Road, Chung-Li City, 32001, Taiwan

   Ming Chung Chang

2. Associate Professor, Yu Da Academy, Taiwan

   Hsiao-Ping Peng

3. Ph.D. candidate, Graduate Constitute of Industrial Economic science, National Fundamental University, Taiwan

   Yan-Ching Ho

Corresponding author

Correspondence to Ming Chung Chang.

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Chang, M.C., Peng, HP. & Ho, YC. The Social Marginal Cost Bend and a Corner Solution of the Second-Best Level of Public Good Provision: A Review and an Extension. Swiss J Economics Statistics 152, 209–241 (2016). https://doi.org/10.1007/BF03399427

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• Published: eleven January 2016

• Issue Date: July 2016

• DOI : https://doi.org/10.1007/BF03399427

JEL-Classification

• H21
• H41

Keyword

• 2d-best public good provision
• social marginal cost
• need-shift effect
• weak Laffer issue

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Source: https://sjes.springeropen.com/articles/10.1007/BF03399427

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