Case Of Public Goods Research Articles

The purity of impure public goods

AbstractIn this paper, we provide a new perspective on the links between the analysis of the voluntary provision of pure and impure public goods. In particular, it is shown that the impure public good model can be transformed into a pure public good one. This innovative method not only leads to new comparative statics results, but also provides new insights on the impure public good model, for example, on causes of the nonneutrality of income transfers with regard to Nash equilibria in the impure public good case.

Fiscal Equity In Federal Systems

Abstract This paper examines the normative foundations of fiscal equalization – an issue handled, apparently decisively, in a classic paper by James Buchanan (1950). Contrary to Buchanan's claims, we argue that fiscal equalization requires extremely strong value judgements – at least in the case where fiscal differences arise from the interaction of public goods provision under different population size – effectively committing one to a Rawlsian maximin rule. Much weaker forms of the 'social welfare function' in this public goods case will generate the requirement that private consumption levels be equalized, but specifically not public consumption levels – in which sense private goods equalization seems normatively weaker than public goods equalization, If this is so, the hope of justifying federal fiscal equalization on the basis of relatively uncontroversial individualistic norms seems illusory.

Sharing the cost of a public good: An incentive-constrained axiomatic approach

We study the problem of provision and cost-sharing of a public good in large economies where exclusion, complete or partial, is possible. We search for incentive-constrained efficient allocation rules that display fairness properties. Population monotonicity says that an increase in population should not be detrimental to anyone. Demand monotonicity states that an increase in the demand for the public good (in the sense of a first-order stochastic dominance shift in the distribution of preferences) should not be detrimental to any agent whose preferences remain unchanged. Under suitable domain restrictions, we give an explicit characterization of all incentive-constrained efficient allocation rules. We then show that there exists a unique incentive-constrained efficient and demand-monotonic allocation rule: the so-called serial rule. In the binary public good case, the serial rule is also the only incentive-constrained efficient and population-monotonic rule.

Public Sector Entrepreneurialism and the Production of Defense

This paper considers the proposition, popular in much political rhetoric over the last two decades, that public sector organisations should develop entrepreneurial capabilities in their provision of public goods and their interactions with private sector providers. We take national security as a paradigm case of public goods and discuss issues around entrepreneurship in its provision by public and private sector organisations. We argue that while there appear to be clear opportunities for extending an entrepreneurial culture into the operations of national defense organisations, the special features of providing security as a public good presents fundamental challenges. We use a principal-agent framework to undertake analysis.

Strategyproof Cost Sharing of Multiple Excludable Public Goods

In a model of cost sharing of multiple excludable public goods, we examine the properties of mechanisms satisfying strategyproofness, no subsidy, outcome non-bossiness, budget balance, individual rationality and consumer sovereignty. We show that such mechanisms in general will not satisfy the equity property of equal treatment of equals. This contrasts with the single excludable public good case.

An Economic Analysis of the Private and Social Costs of the Provision of Cybersecurity and other Public Security Goods

This paper examines the incentives of private actors to invest in cybersecurity. Prior analyses have examined investments in security goods, such as locks or safes, that have the characteristics of private goods. The analysis in this paper extends this analysis to examine expenditures on security goods, such as information, that have the characteristics of public goods. In contrast to the private goods case, where individual uncoordinated security expenditures can lead to an overproduction of security, the public goods case can result in the under-production of security expenditures, and incentives to free ride. Thus, the formation of collective organizations may be necessary to facilitate the production of public security goods, and the protection of information produced by the collective organization should be a central feature of such organizations.

Interpersonal Interaction and Economic Theory: The Case of Public Goods

Interpersonal interaction in public goods contexts is very different in character to its depiction in economic theory, despite the fact that the standard model is based on a small number of apparently plausible assumptions. Approaches to the problem are reviewed both from within and outside economics. It is argued that quick fixes such as a taste for giving do not provide a way forward. An improved understanding of why people contribute to such goods seems to require a different picture of the relationships between individuals than obtains in standard microeconomic theory, where they are usually depicted as asocial. No single economic model at present is consistent with all the relevant field and laboratory data. It is argued that there are defensible ideas from outside the discipline which ought to be explored, relying on different conceptions of rationality and/or more radically social agents. Three such suggestions are considered, one concerning the expressive/communicative aspect of behaviour, a second the possibility of a part‐whole relationship between interacting agents and the third a version of conformism.

Principles Of Justice Regarding The Allocation Of Public Resources To Health Policies

The present paper discusses two of the most relevant principles of the paradigm of Justice within the debate regarding the allocation of public resources to health policies: the principles of equality and equity. It emphasizes the need for transparency concerning public policies, since allocative decisions in representative democracies are not taken directly by the population. Such transparency depends on expliciting the paradigms of Justice which underlie the formulation of such policies. This study shows that equality and equity are, respectively, the basis for an all-inclusive-benefits-package as well as for the focusing of social policies. It also explicits some implications of adopting such strategies, both in the general as in the public goods case. Under an epidemiological perspective, the study concludes that the welfare of population can be achieved either by focusing or through an all-inclusive-benefits-package.

Welfare-domination under preference-replacement: A survey and open questions

The objective of this paper is to describe various applications of a requirement of solidarity pertaining to situations in which the preferences of some of the agents may change. It says that the welfares of all agents whose preferences are fixed should be affected in the same direction: they should all weakly gain, or they should all weakly lose. We show how this condition, which we name “welfare-domination under preference-replacement”, can help in evaluating allocation rules. We discuss it in several contexts: private good allocation in classical economies, public good decision, binary choice with quasi-linear preferences, economies with indivisible goods, economies with single-peaked preferences, both in the private good case and in the public good case, and economies with time. For some of these models the implications of the property are well understood. For others, we state a number of open problems.

The IMF and the emerging markets: A reappraisal of the central banking model

Country-level appraisals of International Monetary Fund (IMF) programs have eclipsed concerns with the global role of the organization. This reconsideration of the early central banking analogy is prompted by the emerging markets phenomenon. Drawing on the banking literature, the role of national reserve holdings in the context of adjustable exchange rates is addressed. The central bank parallel suggests that reserves complement the growth of obligations to international capital markets and a public goods case is made for IMF involvement in this connection. The prudential regulation aspect of central banking is also explored for its insights into the evolution of the Fund in the context of open capital markets.

Immiserizing growth with interregional externalities of public goods

If an impure public good is provided non-cooperatively and its externalities are different across regions, the paradoxical result of immeserizing growth may occur because of the reaction of the other regions to the public good. A welfare implication of the impure public good case is opposite to that of the pure public good case and the private good case.

The comparative static properties of the impure public good model

This paper explores the comparative static properties of the impure public good model, in which a privately acquired activity jointly produces a public and a private good. The comparative statics are expressed in terms of familiar income and Hicks-compensated price responses. Unlike the pure public good model, the impure public model can display positively sloped reaction curves even in the absence of income effects. Comparative statics involve changes in price, or income, or the contributions of others, or the proportions in which the joint products are produced. Our representation highlights the influences that make the impure public model different from the public good case.

A note on lindahl taxes when public goods are inputs to household production

This note explores the incidence of benefit taxation when public goods yield utility only indirectly, as inputs to household production. It provides a condition for tax progression in terms of measurable parameters. The result is contrasted with the usually considered case of public goods being ordinary consumption goods, in which the parameters that indicate whether benefit taxation would be progressive are inestimable because of the preference revelation problem.

Bureaucracy and the divisibility of local public output

The empirical results of this paper are derived from a monopoly view of local government decisionmaking in contrast to the competitive view offered by earlier researchers. That our results are similar to earlier findings lends additional support to the conclusion that local output is largely private in nature. Other than park and recreation services, there appear to be no economies in consumption for local services, nor any economies of density. Larger cities do not appear to be more efficient than smaller cities.10 Of course, this result holds only for the sample of cities used here and does not rule out scale economies for communities smaller than those in our sample (i.e., below 25,000 population). The pure public goods case is frequently cited as a justification for the provision of many services by local government, and for increasing the size and reducing the number of local jurisdictions. Therefore, it is noteworthy that empirical tests derived from models that have employed differing assumptions about the monopoly power of local government have found little evidence to support these arguments for consolidating local government.

On the Erosion of Public Facilities∗

The failure of a market system to produce efficient of public goods is conceptually equivalent to failure to eliminate public bads in sufficient quantity. The usefulness of this view of public goods case lies in insight it provides into problem, often neglected in literature, that public facilities, once provided, often tend to erode quickly. [Buchanan] When market behavior results in excessive public bads, there are in theory three approaches to deal? ing with problem: 1) Behavior may be modified so that bads are not excessive; 2) The institutional framework may be altered such that market no longer fails?which largely involves de? fining property rights and minimizing transactions costs; 3) Collec? tive action may be taken to eliminate public bads (produce public goods). For example, market in main fails to respond to demand for recreational parks. If individuals were to voluntarily contribute according to their use of such facilities (a behavioral change), or if some method of inexpensively preventing free riders could be devised (an institutional change), sufficient parks would be provided by private market. Otherwise, third alternative is publicly provided parks. If behavioral or institutional changes are feasible, public bads are permanently eliminated, since private incentives that produced them have been removed. In contrast, if public goods are provided through collective action, individuals con? tinue to have the same incentives for allowing a public facility or service to erode, to run down, to be destroyed, as they do for failure to provide goods or services in efficient quantities in first place. [Buchanan, p. 66] This erosion is a public bad not theore? tically different from public bad that collective action sought to eliminate. A complete theory of public sector must be concerned not merely with provision of public goods, but also with effective usage of existing facilities. Our purpose in this paper is to explore briefly nature and causes of this erosion of public facilities.

Excess Burden and the Voluntary Theory of Public Finance: The Case of Intermediate Public Goods

IJohnson and Pauly (1969) correctly pointed out that the condition for the optimal supply of public goods derived by Samuelson (1954) is based on the assumption that public goods are financed by efficient lump-sum taxes. They derived an optimal (i.e. second-best) condition for the supply of public goods in the presence of distortions due to nonlump-sum taxes, such as an excise tax. Like Samuelson they confined their analysis to public goods which are final products and therefore considered the voluntary theory of public finance which assumes that the basic decision-making unit is the individual consumer-votertaxpayer. Assuming that consumers take into consideration not only the monetary cost of the supply of public goods but also the welfare costs due to inefficient taxes, they showed that a smaller quantity of public goods is supplied under an inefficient tax than the optimal quantity supplied under an efficient tax, the marginal utility of money being assumed constant. The aim of this note is to extend their argument to the case of public goods which are intermediate goods, and to show that there are cases where pressures from industry on government cause an under-supply of public goods even when the financing is done by an earmarked lumpsum tax on the industry. In spite of Galbraith (1958) an under-supply of public goods has been thought to be the least likely result for intermediate public goods, since industries have more influence on governments than do consumers (see for example Downs, 1957, pp. 255-259).

Contrast between Welfare Conditions for Joint Supply and for Public Goods

1. THE theory of public goods 1 is sometimes confused with the theory of joint production. This is in the nature of a pun, or a play on words: for, as I have insisted elsewhere, as we increase the number of persons on both sides of the market in the case of mutton and wool, we converge in the usual fashion to the conditions of perfect competition. But when we increase the number of persons in the case of a typical public good, we make the problem more indeterminate rather than less. To elucidate the difference, I shall fill in what appears to be a minor gap in the literature, namely a needed statement in terms of modern welfare economics of the various optimality conditions as they appear in the case of joint products. The analysis is straightforward; and after it is before us, we can clearly see the difference between it and the well-known optimality conditions for the case of public goods. 2. I begin with an examination question given recently at the Massachusetts Institute of Technology: Corn is produced by land and labor; and so are wool-bearing mutton-bearing sheep. Assume the totals of available land and labor to be fixed. Write down the various welfare optimality conditions in the case where all people happen always to consume wool and mutton in the same proportions that sheep bear these products. And then, by contrast, write down the conditions that would have to prevail if individuals' indifference contours for wool, mutton, and corn involve the usual variability of proportions. This proved a difficult question for first-year graduate students in economic theory. Still many perceived that in the first case they could essentially work with two rather than three goods, substituting sheep as a kind of composite good for wool and mutton, and thereby ending up with the standard welfare conditions for two ordinary (private) goods, corn and sheep.