Efficiency in the provision of pure public goods by private citizens
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This paper raises an old question and proposes a new answer. The question is, “Must public goods be produced by governments?” The consensus answer is “Yes,” on the grounds that transaction costs related to group size prevent all potential consumers of a public good from entering into voluntary arrangements to produce efficient levels of that good. Government intervention thus is required to achieve efficiency.
Yet many obvious examples of public goods are not financed or even subsidized by government. Conspicuous examples of this phenomenon include the development of important innovations in technique in fields such as music (Bach and Beethoven), literature (Defoe, Dickens and Shakespeare, not excepting Homer or Adam Smith), and the visual arts (Cezanne), not to mention many crucial scientific discoveries. Indeed, the obvious public-good aspects of scientific knowledge induced many private societies to offer prizes for particular innovations. Two questions are raised by the private, voluntary provision of nonrival outputs or inputs: (1) what conditions contribute to this phenomenon, and (2) can voluntary provision come “close” to efficient provision? We suggest in this paper that, under certain conditions, the gains from many public goods whose benefits reach nationwide populations are largely realized at group sizes far smaller than even county or municipal jurisdictions.
KeywordsPublic goods Voluntary provision Non-cooperation Voluntary providing group size
This paper as well as others was presented at the 2011 meeting of the Public Choice Society in San Antonio, at a session commemorating the work of a dear friend and colleague Earl Thompson. It goes without saying that the field of public choice and scholarship regarding public goods would be weaker today without Earl’s contributions in such works as his “Perfectly Competitive Production of Collective Goods” (Thompson 1968) and “Taxation and National Defense” (Thompson 1974). We are grateful to John Lott, Tom Borcherding, Ben Zycher, and the members of the Workshop in Public Economics at Clemson University for valuable comments.
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