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Originally Posted by Sholar
You don't need a utilitometer to determine whether or not the good is underproduced. This is extremely important to understand.
In fact I'm no longer sure that we are using the word "underproduced" in the same way.
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Originally Posted by mjkidd
Isn't maximization of utility how the optimal production of a public good is defined?
No. When you go to a store, you don't try to convince the shopkeeper that the candy bar has more utility to you than it does to him. You offer him more money than it is worth to him. (If you value is less than he does and purchase it, the difference between those values is the surplus that is generated.)
If you valued the candy bar more than he did, but still left the store without purchasing, then that would be an example of inefficiency. (Also inefficient: you valued is less than he did but the transaction still took place. This case would violate our assumptions about rationality and markets.)
For a public good, imagine a large group of people. They all have a price they are willing to pay for the good. If the sum of that money (not what they say they are willing to pay, but their actual private value) exceeds the cost of provisioning the good -- and yet the good is still not produced -- that is an example of inefficient underproduction.
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So Tom bought $50 worth of pride...
I don't know that it makes sense to discuss your example before we agree on baseline definitions. What I will say is that in a quick reading, you had Tom bidding $50 secretly but $150 publicly. That suggests that the "pride" is worth at least $100 to him, not the $50 than you stipulated. But the entire exercise is a little tricky...
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Originally Posted by TheQuietAnarchist
Ideally, we want to produce "socially optimal" outcomes, but how we define optimal is actually dependent on individuals and the cultures in which they are situated, so we're already going to stumble when it comes to trade-offs between equitable distribution of goods and efficient production of goods.
"Optimal" depends only on individual preferences and the cost of realizing their desires.
The question of equity doesn't enter into it at all, except insofar as the individual actors are willing to pay for it.
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I suppose an interesting place to start is trust / honesty, and how we might induce actors to trust one another in societies with large, heterogeneous, and relatively transient populations. That sort of analysis requires a more detailed understanding than I suspect we posses.
I am too tired to make the appropriate joke about the
revelation principle. Which is, by the way, a wonderful idea in economics. (Briefly: "telling the truth" can be made to be the best strategy for a wide class of games.)