Public Economics Lectures Part 1: Introduction

Discrete Choice Model
Recast as planner’s problem choosing threshold above which agents
are allocated good 1:
{
}
W (t) =
+t
max
_
V
∫ ∞
_
V
∫ ∞
_
V
[V k − (p 1 + t)] dF (V k ) + Z
dF (V k )
Again obtain Harberger formula as a fn of slope of aggregate demand
curve dx 1
dt :
dW
dt
⇒ dW dt
( ( _ )) ( ( _ ))
= − 1 − F V + 1 − F V + t d ∫ _ ∞
V dF (V k )
dt
= t dx 1
dt
Public Economics Lectures () Part 3: Effi ciency 59 / 105