Essays in Public Economics

This thesis consists of four independent chapters which are linked in several aspects: All chapters contribute to the theory of public economics. From a theoretical point of view, all chapters are based on the assumption that agents are privately informed about their preferences, and all chapters use mechanism design theory. Yet their applications vary and cover topics such as public good provision, externality regulation and income taxation. The first three chapters form an entity as they use the independent private values model. Chapter 4 uses robust mechanism design. Chapter 1 studies the independent private values model in mechanism design, applied to the problem of bilateral trade and public good provision. It provides conditions under which a model with a large but discrete number of types behaves qualitatively in the same way as a model with a continuum of types. Chapters 2 and 3 deal with the problem of externality regulation. I consider firms that can reduce externalities, which is beneficial to consumers. Firms have private information about their costs, and consumers have private information about their preferences. Chapter 2 investigates optimal price instruments (e.g. taxes) and quantity instruments (e.g. tradable permits). These two instruments are frequently used to regulate externalities such as CO2-emissions, acid rain and water pollution. Both instruments are contrasted with the optimal unconstrained mechanism to regulate externalities. Chapter 3 addresses the question how externalities should be regulated when distributional concerns and efficiency are considered. If stronger weight is put on consumers in the regulator's welfare function, lower emission reduction takes place than when the regulator is interested in jointly maximizing consumer surplus and firm profits. Chapter 4 varies in that it allows preferences to be different from selfish. It is a contribution to the theory of robust mechanism design, taking into account findings of experimental research. More precisely, it describes how mechanisms can be designed that are not only robust with respect to variations in beliefs but as well to deviations from standard preferences.