Computation of an industrial equilibrium

In this paper we use and develop the concept of a semi-public good. A semipublic good is defined as an ordered pair of commodities, the first one being a private commodity and the second one a public good, which are related to each other by an individual inequality constraint for each individual agent. This approach allows us to design economie institutions which carry out price discrimination among users of a semi-public good. People who are seriously hampered by too small a provision of a public good, because it constrains their use of the private commodity, are willing to pay a mark-up on the price for the latter one if this mark-up is spent for expanding the provision of the public good. In the model the availability of a public good is planned and organized by a central planner. The consumer's willingness to pay an individual mark-up on the price of a private commodity reflects his preferences for the availibility of the public good. These mark-ups are collected by the private goods industry and transferred to the central planner in order to cover the costs of the public good infrastructure. This framework of a private industry and a central planner providing semi-public goods is called an industrial economy. The model will be illustrated by some numerical examples. April 1987. *\ > This research is part of the VF-program "Equilibrium and disequilibrium in demand and supply", which has been approved by the Netherlands Ministry of Education and Sciences. ^ Department of Econometrics, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands. > Department of Economics and Econometrics, Free University, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands. COMPUTATION OF AN INDUSTRIAL EQUILIBRIUM