Abstract
The literature on the theory of public goods is voluminous. This chapter provides an overview of public goods related to rural amenities. Many of these amenities tend to be non-exclusive and rival (e.g. forests and irrigation systems), exclusive and subject to some rivalry (e.g. nature reserves) or non-exclusive and non-rival (e.g. scenic views and clean air and water). Many beneficiaries of these amenities choose not to pay and will free ride on the efforts and activities of others (such as farmers and agro-foresters). This can present a problem for provision. Hence, rural amenities require collective action to be properly and efficiently provided since the logic of individual interests results in a socially less than optimum response.
This chapter is a very updated and revised version of Chapter 3 (‘Economic aspects of nature policy’) in van der Heide (2005).
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Notes
- 1.
Some authors, for example, Perman, Ma and McGilvray (1996, p. 102), use the term ‘public good’ to refer to any good that is non-rival in consumption, irrespective of whether it is also excludable or not. Furthermore, most economic textbooks concerning public goods (e.g. Baumol and Oates 1988; Cornes and Sandler 1996) usually deal with the case in which a public commodities is a ‘good’ for everyone. However, there are also commodities, for example, air pollution or, for shepherds, the existence of wolf populations, which can be referred to as public bads (Sandberg 2007).
- 2.
- 3.
These two characteristics were already analysed by Weisbrod in 1964, who in his influential article about option value wrote ‘... that a number of significant commodities exist which are apparently of a pure individual-consumption variety, but which also possess characteristics of a pure collective-consumption good’ (p. 471).
- 4.
Theoretically speaking, pure public goods do not require governments or the private sector to achieve the socially optimal levels of provisions: they are just available to everyone.
- 5.
Interestingly, the Swiss-born philosopher Jean-Jacques Rousseau (1712–1778) viewed private property as a destructive, selfish and egotistical institution that rewarded greed and self-interested behaviour. According to him, property was not a natural attribute of human existence. In his natural state (‘state of nature’), man did not have property. Rousseau explains in his Discourse on the Origin and Foundation of Inequality Among Men (published in 1755) that ‘... the fruits of the earth belong to all and that the earth belongs to no one’.
- 6.
The same requirement exists for common property and for state property: without an authority system, that can assure that the expectations of rights holders are met, there can be no property (Bromley 1997). However, Coase (1960), in examining externalities, rejects such intervention by the government. Regardless of who holds the property rights, in a world of perfect competition, perfect information and zero transaction costs, external effects will often be efficiently dealt with by private bargaining. Under these conditions, no government intervention is necessary to secure an efficient allocation of resources, because the several users will take care of this allocation themselves, through bargains. Coase emphasises that the legal specification of property rights is not necessarily a good prediction of what the final allocation will be. Rather, the legal rules determine a starting point from which bargaining can proceed. The existence of well-defined property rights and the existence of a legal system that guarantees the enforcement of these rights are the necessary conditions for bargaining solutions.
- 7.
Hardin’s (1968) unfortunate use of the term ‘commons’ to describe an open access regime led to much confusion in the literature on the tragedy of the commons. Since the influential article by Hardin, natural resources used in common are variously referred to as ‘open access’, ‘common-pool’, ‘common property’ and the ‘commons’ (Steins and Edwards 1999). Nowadays, however, it is well understood that Hardin had open access resources and not common property in mind (Turner et al. 1994; Bromley 1997).
- 8.
The provision of public goods has significant economic welfare implications. In seeking to provide nature, the government should not discriminate among citizens for wrong or irrelevant reasons. That is, a fair distribution of public goods is required. For a thorough discussion about this distributional fairness, see Bovenberg and Teulings (1999) and WRR (2000).
- 9.
At almost the same time as Buchanan, Olson indicated in The Logic of Collective Action (first published in 1965) the need for exclusive clubs with restricted membership size to share impure public goods. However, for several reasons (see Cornes and Sandler 1996, pp. 352–353), Olson’s analysis never generated the same interest as that of Buchanan. As a matter of fact, after Buchanan’s celebrated work, it is Berglas (1976, 1981) who is considered to have developed club theory further.
- 10.
Buchanan developed and pioneered the original statement of club theory. The list of extensions is now very long (see, e.g. Berglas 1976; Berglas and Pines 1981; Byalsky et al. 1999). A survey of the literature is given by Sandler and Tschirhart (1980, 1997). Also Cornes and Sandler (1996, Part IV) provide a fascinating treatment of clubs and club goods and a helpful survey of the literature.
- 11.
Rivalry manifests itself in congestion, or crowding (these two terms are often used interchangeably), which refers to the decline in quantity and quality of the good as new users of the service are added (Hanson 1978).
- 12.
Non-members are excluded from direct participation. They do not profit from the so-called user benefits, because non-member are excluded from enjoying certain ecosystem goods, such as animals, forests, and the scenic views that these nature reserves provide. However, non-members cannot be prevented from the life-support functions of these areas. Moreover, they can also benefit from knowing that these areas exist (existence benefit). Thus, in fact, nature reserves provide benefits to both members and non-members. In other words, there are two distinct groups of beneficiaries of nature reserves, which are heterogeneous and diverse in their individual preferences and not necessarily mutually exclusive in their persons.
- 13.
Important early work that is the basis for the literature treating recreation as a club good, with nature areas sometimes used as examples, is Fisher and Krutilla (1972). Their work deals with maximising the value of a tract of ‘wilderness’ land devoted to low density recreation. And although they included explicitly the cost of ecological damage and other external costs, apart from the costs of congestion, their landmark contribution has, nevertheless, until today received only scant attention.
- 14.
It is important to realise that club theory not solely relates to privately owned clubs but also allows for government-operated clubs, as well as for other institutional forms. For example, constitutional rules may prescribe government provision of certain club goods, such as highways. Cornes and Sandler (1996, Chapter 13), however, point out that government provision of club goods may restrict efficiency compared with the case of market provision, since a government does not have to compete against alternative institutional forms and membership size cannot be chosen optimally. In addition to local and national governments, another example of a club that is not privately owned is the United Nations. This multilateral organisation provides multiple club goods in terms of peacekeeping operations, humanitarian action and emergency relief, and development assistance. Because of the United Nations’ limited financial resources and equipment, these activities are congestible goods. Peacekeeping forces, for example, cannot be deployed simultaneously in two different places. Once brought into action in one area, they can no longer be of service to other trouble spots.
- 15.
It should be realised, however, that in the case of club goods, the population is not partitioned either when some individuals do not belong to any club supplying the club good.
- 16.
All members are assumed to have identical preferences, so that equal cost sharing is suggested. As a result, the total cost per member will fall as additional persons join the club.
- 17.
With the total cost per person on one axis and the number of club members on the other, the cost curve must be rectangular-hyperbolic because the product of the two variables (total production costs of the club good) is a fixed constant (see Chiang 1984). A rectangular hyperbola approaches the axes asymptotically, implying that even if club size becomes very large, the total cost per member will never be zero.
- 18.
The classification of various physical goods is not as strict as the table might suggest, because characteristics of goods can change over time and over place. Technological progress has made it possible to exclude individuals from consumption of a good. For example, decoders make exclusion of radio and television transmissions possible. Moreover, food typically may be thought of as a private good, but under a communist regime it is supposed to be distributed equally among all citizens, with no one being excluded from it.
- 19.
Although the Tiebout paper attracted relatively little attention for a decade or more after its publication, it has been cited in more than 1000 articles and books since 1970. See, for example, Bewley (1981), Berglas (1984), Rubinfeld (1987), Heikkila (1996), Kollman et al. (1997), Epple and Sieg (1999) and Caplan (2001) and the references therein. Dowding (2008) and Dowding et al. (1994) critically survey empirical tests of Tiebout models. The limitations of the Tiebout model are emphasised in an influential paper by Epple and Zelenitz (1981). The theoretical local public economics literature relies heavily on the Tiebout framework; a prominent example is Epple and Romer (1991), who investigate mobility and redistribution. However, the impact of the Tiebout paper goes far beyond its public finance origins. For instance, the Tiebout hypothesis is extensively applied to explain persistent geographic segregation (Zeng 2008), education resource inequality (Figlio et al. 2004) and the efficiency of ground lease systems (Deng 2002).
- 20.
Sharpe and Newton (1984) assert that Tiebout’s assumptions are so unrealistic that the model is empirically irrelevant. However, the assumptions are no less realistic than ones used to describe perfectly competitive markets for private goods. Their criticism is thus not specifically upon Tiebout as such but rather upon the economic method (Dowding et al. 1994).
- 21.
There are, however, some important differences between the Tiebout and club models. First, they differ with respect to number of publicly provided goods: the Tiebout situation deals with a package of public goods, whereas clubs provide a single public good. Another difference involves the provision. In the Tiebout model, the public good provision is held fixed per jurisdiction and, therefore, provision and membership size decisions are not interdependent. In club models, however, membership decision affects the provision choice. A final distinction between club theory and the Tiebout hypothesis relates to the fact that membership (or community) size is based solely on cost sharing in the Tiebout model, whereas size is also based on social aspects, as friendship or companionship, in the club model (Cornes and Sandler 1996).
- 22.
A parallel can be drawn between the Tiebout model and the literature on environmental policy coordination or other forms of environmental agreements between countries. Comparable to the Tiebout situation in which individuals reveal their preferences for bundles of public goods by moving away, a strict national environmental policy choice can also result in migration responses. For if countries differ in their environmental policy, individuals and firms can locate in that country that pursues and implements the policy measures they prefer most (e.g. see Markusen 1975; Hoel 1999; Hoel and Shapiro 2000).
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van der Heide, M., Heijman, W. (2019). A Public Good Perspective on the Rural Environment: Theory and History. In: Dries, L., Heijman, W., Jongeneel, R., Purnhagen, K., Wesseler, J. (eds) EU Bioeconomy Economics and Policies: Volume II. Palgrave Advances in Bioeconomy: Economics and Policies. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-28642-2_7
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