Re-thinking the Definition of Public Goods

Published on Real-World Economics Review Blog, by Editor / from June Sekera, July 9, 2014.

… 4. The Three Types of Public Goods:

  • Category #1: No effective market. In this category are goods and services that market-based suppliers lack incentive to invest in producing either because:
  • a) their benefits are spread so broadly that their value cannot easily be captured in an exchange between an individual buyer and seller so it is impractical or impossible to charge users individually. For such goods and services, collective payment is more practical, or it is the only way they will be produced.  
  • b) the return on investment is too uncertain.
  • In this subcategory are investments on which the return is too far in the future, and hence too uncertain to induce private expenditure. Writing about the ways in which “government nurtures innovation,” Nocera quotes Manzi saying that public investments can “solv[e] technical problems that offer enormous social benefit, but are too long-term, too speculative, or have benefits too diffuse to be funded by private companies.”[20]
  • Category #2: Positive externalities. In this category are goods and services whose positive externalities (economic and/or social benefits) are so important that society determines – through the collective decision-making of the electoral process – that they must be accessible to the entire population regardless of individuals’ ability to pay.
  • Category #3: Natural monopoly. In this category are those goods, services and industries that meet the definition of natural monopoly and for which collective, public provision is more efficient and effective than provision through competition among multiple providers. (I.e., where efficiency and effectiveness stem from network efficiencies of scale and/or network value creation).
  • To reiterate, in each category the public product, service or benefit 1) comes into being via collective choice; 2) is financed through collective payment; and 3) is furnished through public, non-market production.

5. Hallmarks of Public Goods Production: … //

… 7. Public goods and democracy:

  • Central to the instrumental definition offered in this paper is that public goods are created through the democratic process. Fundamentally, public goods are created by citizens voting for representatives who, in turn, make decisions about how government monies, raised collectively through taxes, will be used. These “elected funders” make day-to-day decisions about what and whether to fund. But in the end, the citizenry has the power, through democratic processes, to appoint and dismiss those elected funders.
  • Notably, some public goods may be considered “bad”. For a U.S. example, tax expenditures and other subsidies to corporations may be considered bad by progressives, and food stamps are considered bad by many conservatives. These conflicting views are resolved through the democratic process; through voting, citizens effect their choices. Hence citizens must participate in the electoral process and vote for representatives who reflect their own view of what is in their and society’s interest.
  • Deneulin and Townsend[29] offer a useful summary of the connection between public goods and collective decision-making, worth quoting at length:
  • “there are goods, including many that are non-trivial for human well-being, the benefits of which may be received by people only in a common enterprise…only in relationships, structured as necessary to enable the common action that ‘produces’ common goods, that lives which benefit from such goods can be lived.
  • Recognising the life in common of a city or nation as a species of good unavailable to anyone except by the irreducibly common action which makes it what it is raises further questions. Among them are: how is the common good generated or nurtured and how can we ensure that the common life of a community is good and not bad?..We emphasise here that there is no guarantee that participation in common action will generate something genuinely good. It might lead to bringing into power a government which might use nuclear weapons or which introduces unjust structures such as those of Apartheid. Human actions are always fallible because they are human. However the ‘possibility of moral evil is inherent in man’s constitution’ does not nullify the claim that the good for each of us is found and sustained in relationships, whether at the level of the community of the family, village, country or world, and the public policy ought to recognize and nurture them if it is not to undermine the human well-being.
  • An instrumental definition of public goods that is grounded in the foundational premise of collective choice (voting) can help strengthen democracy so long as the term and concept are widely accepted in public and political discourse.

8. A Research Agenda: … //

… (full long, long text, examples, notes and links to related articles).

Mixed Links:

Back on the Grid and Ready to Talk Financial Oversight and Human Nature, on On The Economy/Jared Bernstein Blog, July 12, 2014;

What Do King Solomon and David Lee Roth Have in Common? A New Freakonomics Radio Podcast, on Freakonomics, by SUZIE LECHTENBERG, July 10, 2014;

The Top 200 Influential Economics Blogs – August 2013, on Onalytica, by Andreea Moldovan, July 31, 2013 … with a real Link to every of the 200 sites;

… und noch das:

Die pure Wahrheit in 8 Minuten mit Andreas Popp, 7.49 min, von Der Wassermann Unzensiert am 10. Mai 2013 hochgeladen.

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