Lindahl Pricing:

The Lindahl Equilibrium is a method proposed by Swedish Economist Erik Lindahl for financing public goods or sharing of cost by different consumers. Let there be two consumers A and B.

         K=100 

Assume that the in fig 2.4 vertical axis measures k or the fraction of unit cost contributed by A. Given the unit cost C and assuming it to be constant, kC is the price paid by A, and D_A is the demand schedule for the public good S. Since B's price equals (1-k) C, and since both share the same quantity of S, B's demand curve drawn with regard to k is given by DB. Individual A may then look upon DB as showing the price at which various quantities of S are available to him, i.e. as a supply schedule for the public good which confronts him. B similarly may regard D_A as his Supply curve. The fraction of the price which both are willing to pay (K for A and (1-K) for B) adds to one at the intersection of D_A and D_B, at output OM. This approach is applicable to a bargaining situation with small numbers.