Environmental Cleanliness as a Public Good: Welfare and Policy Implications of Nonconvex Preferences

This paper explores the implications of a form of nonconvexity in individual preferences over the public good “cleanliness.” The implications of this nonconvexity on equilibrium outcomes, welfare analysis, the process of development, and optimal government policy are examined. The nonconvexity can imply a role for government in providing a commitment to a clean environment even if the government has a cost disadvantage in cleaning compared with individuals. By providing a credible commitment to a clean environment the government can induce private individuals to undertake optimal levels of cleaning on their own.