Social welfare and coercion in public finance
Introduction In their introductory essay, the editors of this volume analyze a stylized social choice situation to illustrate how coercion inevitably arises in any democratic state. It is useful to begin by recalling that example here: There is a group of people who have come together in a room for a common purpose and who must collectively set the temperature on a thermostat and then pay for the resulting use of energy. Inevitably, some end up too hot or too cold, and even those for whom the temperature is just right are generally unhappy with the balance between what they pay and what they get. Individuals were able to escape the situation only if they moved out of the building. However, if they stayed, they had to put up with the coercion implied by their assent to the collective decision. The example embodies several essential aspects of coercion in the public economy. Although we shall only deal with one of these in this essay, it is useful to review all of them briefly to provide a broader context for our discussion. Individuals will voluntarily participate in a collectivity despite its coercive nature if joining makes them better off. This suggests a first focus, namely the analysis of why communities form, under what circumstances people will join or leave them, and the nature and determinants of coercion that may persist in the equilibria of different types of societies. A separate body of work has developed on this topic, including the essays in the first part of this volume. A second focus deals with the choice of decision rules once a community has been formed. Here the classic work in a public finance context is by Wicksell (1896) and Lindahl (1919). As pointed out in the editors’ introductory essay, Wicksell's proposal for approximate unanimity stems from his desire to minimize coercion exercised via the public finances for members of a community while providing for their welfare. The mechanism design literature discussed in the previous essay by John Ledyard extensively studied the question of the existence under various conditions of the Wicksell-Lindahl solution, in which marginal tax prices are equal to individual marginal evaluations of the public good that is provided at its Pareto efficient level.
Winer, S, Tridimas, G. (George), & Hettich, W. (Walter). (2012). Social welfare and coercion in public finance. In Coercion and Social Welfare in Public Finance: Economic and Political Perspectives (pp. 160–200). doi:10.1017/CBO9781107280847.010