Public Choice

The Lindahl equilibrium exists when the level of public goods provision and consequential tax price equal the marginal costs of production of a public good. Although it is Pareto efficient, there is no incentive for individuals to disclose their true preferences, so inefficiency results, meaning an under supply or oversupply of public goods.

Consider the idea of Medicare for all. The marginal cost of production of health care services is likely to be extremely high. The taxes necessary to support such a system would necessarily need to be very high as well. Voters are not likely to acknowledge acceptance of such a tax requirement to receive government provided health care for all.

• What factors do you believe could changed their minds?

Consider the private costs for health care for the individual and the nation as a whole vs. the taxation necessary for public provision of health care.

• If such a policy were implemented, do you believe we would have and under supply or oversupply of health care? Why or why not?