Lindahl Equilibrium

AAA

DEFINITION of 'Lindahl Equilibrium'

A concept that proposes that individuals pay for the provision of a public good according to their marginal benefits in order to determine the efficient level of provision for public goods. In the equilibrium state, all individuals consume the same quantity of public goods but may face different prices because some people may value a particular good more than others. The Lindahl equilibrium price is the resulting amount paid by an individual for his or her share of the public goods.

INVESTOPEDIA EXPLAINS 'Lindahl Equilibrium'

The Lindahl equilibrium concept was proposed by Swedish economist Erik Lindahl. Lindahl prices can be viewed as individual shares of the collective tax burden of an economy, and the sum of Lindahl prices equals the cost of supplying public goods such as national defense. One key limitation of the Lindahl equilibrium is that we do not know how much each person values a certain good, which limits its application in the real world.

RELATED TERMS
  1. Pareto Efficiency

    An economic state where resources are allocated in the most efficient ...
  2. Equilibrium

    The state in which market supply and demand balance each other ...
  3. Law Of Diminishing Marginal Utility

    A law of economics stating that as a person increases consumption ...
  4. Tax Incidence

    An economic term for the division of a tax burden between buyers ...
  5. Marginal Benefit

    The additional satisfaction or utility that a person receives ...
  6. Current Liquidity

    The total amount of cash and unaffiliated holdings compared to ...
Related Articles
  1. Game Theory: Beyond The Basics
    Options & Futures

    Game Theory: Beyond The Basics

  2. What causes inflation, and does anyone ...
    Savings

    What causes inflation, and does anyone ...

  3. How A Limited Government Affects A Country's ...
    Economics

    How A Limited Government Affects A Country's ...

  4. Top Tools for ERP Enterprise Resource ...
    Investing Basics

    Top Tools for ERP Enterprise Resource ...

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center