Wednesday, July 29, 2020

Public Goods Provision by a Private Cartel

Public Goods Provision by a Private Cartel


Maarten Pieter Schinkel (University of Amsterdam); Lukas Toth (University of Amsterdam)


To stimulate companies to take corporate social responsibility collectively, for example for fair trade or the environment, their agreements may be exempted from cartel law. To qualify, the public benefits must compensate consumers for higher prices of the private good. We study the balancing involved in assessing a public interest-cartel in a public goods model. The required compensating public good level decreases in each consumer's willingness to pay, which is contrary to the Samuelson condition. The cartel will provide minimal public good for maximal overcharges. Nevertheless it is typically not sustainable, since those consumers that are damaged most by the cartel price increase, by self-selection also have the lowest appreciation for the public good. The information necessary to tell the rare genuine public interest-defense from cartel greenwashing allows the government to provide first-best itself.


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