IDENTIFYING THE LINDAHL EQUILIBRIUM WITHOUT TRANSFERS AS A SOCIAL OPTIMUM

The Lindahl equilibrium is an important solution concept in economies with externalities or public goods. In this paper, a Negishi-type theorem that connects the Lindahl equilibrium without transfers with the social optimum solution is proposed and proved. The theorem states that the solution of a social planner's problem with the social welfare weights proportional to the inverse of the private shadow prices of externalities in an auxiliary Nash equilibrium is the Lindahl equilibrium without transfers. To verify the theorem constructively, an algorithm for finding the Lindahl equilibrium is developed. Its efficacy is demonstrated through a numerical example.