"January 1972." Includes bibliographical references (page 115).

General equilibrium analysis is shown to be a feasible tool for estimating the optimal level of public goods in a regional economy and the optimal allocation of public funds to obtain the desired level. This analysis provides a methodology for investigating the externalities associated with various forms of production. An interaction or trade mechanism is presented which will force a regional economy into equilibrium with the economy in which it is embedded: Relative prices will be identical in these economies for their common commodities. A technique is presented by which all public goods can be treated in a general equilibrium framework. This report presents a methodology for applying general equilibrium analysis to a regional economy. An interaction or trade mechanism is presented which will force a regional economy into equilibrium with the economy in which it is embedded in the sense that the relative prices will be identical in these economies for their common commodities. Specifically one or more consumers in the regional economy is assumed to hold money resources which are allocated to the purchase (sale) in the surrounding economy according to the plan determined by the algorithm presented in this report. The assumptions required for applying general equilibrium analysis to a region are stated. A technique is presented by which public goods can be treated in a general equilibrium framework. Since one of the conclusions from a general equilibrium application is the optimum supply of any commodity, this technique can determine the optimum supply for a region for such public goods as clean water (air, etc.). There is an equilibrium price for a public good for each consumer and these different prices determine what each consumer should be taxed for the public good. The results of some numeric computations are presented indicating how the use of the algorithm works with a regional economy which has a public good.