Benefits of Lindahl Pricing
- Lindahl pricing helps in covering the cost of the public sector good, and sometimes also giving a profit if the marginal cost of the good is increasing.
- It leads to an efficient allocation of the public goods.
- It charges people according to the marginal benefits they derive from the good, so if person 1 has a higher demand for the a particular public good A, as compared to person 2, then person 1 will have to pay more (than person 2).
- Also because of Lindahl pricing everyone is left better off than they would have been without the public good. Each person gets a consumer surplus, equal to the area below his/her demand curve, and above the Lindahl price.
- Lindahl Pricing is beneficial as it reveals the consumer's marginal benefits form the non excludable goods.
- Lindahl tax is a progressing form of taxation. Example: If the willingness to pay for security guards increases with increase in income (which is rational) then Lindahl tax increases with income.
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