This paper derives Pareto-efficient provision rules for national and global public goods in a two-country world, where each individual cares about his or her relative consumption of private goods compared to other domestic and foreign residents.
We contrast these rules with those following from a non-cooperative Nash equilibrium. Both national and global public goods are underprovided in Nash equilibrium under such relative consumption concerns. Finally, when individuals also care about the relative consumption of national public goods, based on between-country comparisons, the optimal provision rule depends on whether or not the national public goods are less positional than private consumption.
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