DISTRIBUTIONAL EQUITY AND THE PRICING OF PUBLIC FINAL AND INTERMEDIATE GOODS

This paper studies the implications of distributional concerns for the pricing of public final and intermediate goods under a general-equilibrium and general-private-production setting. It is shown that, in a many-household world, the pricing formula applying to the household is characterized by the distribution of goods while that applying to the private firm is characterized by the distribution of profits; moreover, both pricing formulae include a term incorporating the general equilibrium redistributive effects of public pricing. We compare our results with those in Baumol and Bradford (American Economic Review, 1970, 60, 265-283), Feldstein (American Economic Review, 1972, 62, 32-36; Journal of Public Economics, 1972, 1, 45-72) and Yang (Journal of Public Economics, 1991, 45, 135 141.)