PRICING AND OUTPUT OF CONGESTIBLE PUBLIC GOODS BY THE ELECTED GOVERNMENT AND PUBLIC BUREAUS (BUDGET CONTROL)

This study focuses on two distinctive features. It pays attention to the determination of price as well as output of congestible public goods based on the public choice theory. In particular, it investigates the choice of price and capacity in a world with uncertainty about the production cost, by the elected government and bureaucrats. It argues that the agency problem is generally expected under the informational asymmetry that bureaucrats know better than the mayor about production cost.;However, this study does not neglect the normative analysis of congestible goods. The Pareto optimal price will be in the inelastic region of the demand curves for these goods in a Tiebout community.;Finally, the models of this study can be considered general models of how pure public goods, as well as private goods, are publicly supplied. Congestible public goods share with pure public goods the property of non-rival consumption, and with private goods that of variability in use through pricing. Therefore, we can apply these models to both cases by assigning the relevant values to parameters or variables.;Another main feature is that this study attempts to derive an optimal budget rule or function which maximizes the expected utility under the incentive compatibility constraint. This budget rule characteristically reflects the resident's utility function and has two parameters which should be selected by the mayor. This budget function will induce bureaucrats to produce these goods at the least cost. The outcome from the optimal budget rule will be better than the pure bureaus' outcome. This is because the mayor links the size of budget to the bureaucratic price and capacity through this function or rule.