Abstract
Some authors see the concept of public good as nothing but a social construct for two reasons. First, different economists seem to create different definitions of the concept. Second, different countries treat different services as public goods.
I collected and analyzed eighteen different terms used by economists in order to point to public good aspects. I reduced the eighteen terms to two crucial ones that allow me to affirm that the ideal concept of public good points to an opportunity for collective gain, but that the non-exclusion possibility makes optimal financing difficult. The lack of optimal financing introduces the problem of whether or not the use of coercion (forced payment by means of government-imposed taxes) is justified. Alternatively, it raises the question of whether or not injustices created by the private provision of public goods (discrimination in club goods) demand governmental supervision of private initiatives with public goods. These questions introduce value judgments captured by the concept of merit good. Therefore, the problem of realizing the potential for gain present in public goods has no unique solution and requires ethical and political judgments. However, the presence of socio-political considerations in the realization of public goods does not invalidate the concept of public good itself, which consists of pointing to opportunities for gains by collective action, whether that collective action is privately or governmentally organized.
This chapter supports Hegel’s claims about the desirability and the possibility of fruitfully mobilizing the government in order to deal with public goods or externalities.
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Thus, inoculation is a private good. It also has externalities (prevention of an epidemic) and is thus also a public good. It can also be declared a merit good and be made obligatory. The theoretical position that the concept of public good is not an absolute and exclusive tag for an economic event is also taken by others when they point out that the nutritional value of bread is rival in consumption (only one person can consume the bread) and thus a private good, whereas the visibility of eating bread is non-rival in consumption (many people can enjoy simultaneously seeing a poor person eat bread) and is thus a public good. Bread is thus partially a private and partially a public good (Adams & McCormick 1993, 111). The concept of public good is, therefore, not like the concept of being pregnant, but rather like the concept of being just. One is either pregnant or not. However, one is always more or less just and also more or less greedy or shrewd.
Philosophically, one describes such an attitude as one which denies the concept epistemological validity but locates its power in voluntarism (i.e., the will; in this case, the political will to decide one way or the other). Other authors, too, distinguish, as I do, between political abuse and epistemological validity of the concept and refuse, also, the claim of Malkin and Wildavsky that political abuse makes the concept epistemologically invalid (Adams & McCormick 1993, 114).
Other authors, too, notice the possible misleading nature of the label “public” in the term “public good.” They, too, separate the superficial problem of misleading associations from the heart of the matter which is the technical definition (Cornes & Sandler 1994, 370, 375).
An illustration of the ideal and thus unreal dimension of the definition of private goods is the requirement that they be infinitely divisible (Arrow & Hahn 1971, 61). This requirement is necessary for another often-used assumption in micro-economics: smooth indifference curves.
(Musgrave 1959 b, 89), [Musgrave at Harvard]. See also (Andel 1984, 634). What Andel refers to as the “third edition” is actually the edition in which the title page refers to Musgrave as being at Harvard. The earlier edition identifies him as a professor at the University of Michigan.
This has also been observed about the concepts of private and public good by others (Adams & McCormick 1993, 109).
I differ from others who call a public good a category and call excludability and rivalness in consumption characteristics (Ostrom & Ostrom 1991, 165 ff.). I see no difficulty in calling the concept “public good” a characteristic or an aspect of concrete economic events.
Some authors warn that externalities cannot be identified with public goods even though there are similarities. Thus, Bohm points out that public policy addressing externalities often aims at curtailing “mainly private activities with negative effects on other [s]...whereas public policy concerning public foods is about increasing — or even creating — something that is suboptimally provided by the private sector” (Bohm 1997, XVII). This difference is conceptually irrelevant, if the purpose is to see possibilities for collective gain. The same author points out that Marshall connected the concept of external economies with some forms of economies of scale (45). The connection between these concepts is taken up when I discuss the concept of “economies of scale”.
(Penguin 1972, 135). Head accuses Buchanan of using “indivisibility” confusingly as a portmanteau term for two characteristics: joint supply and impossibility of exclusion (Head 1974, 78–79).
(Head 1974, 168; Bird & 1972, 4). Head also draws attention to some unfortunate terms used upon occasion for this characteristic, such as: jointness of demand, joint consumption, consumption externality, non-rivalness in consumption (Head 1974, 78 n. 15).
(Head 1974, 28) He also explicitly mentions that it is meant to convey the same problem as Musgrave’s “impossibility of exclusion.” (Head 1974, 28 n. 55, 180)
It is very important to see the difference in point of view taken when using these synonyms. Failing to do so easily leads to confusion. See Olson’s attempt to relate his concept of exclusive collective good to jointness of supply. (Olson 1968, 38 n. 58)
This move is, in fact, made by Samuelson when he changes his verbal definition of public goods without changing his mathematical model. Thus, in the Biarritz conference, he writes, “A public good is one that enters two or more persons’ utility” (Samuelson 1969, 108). Other authors, too, make this move when they recommend that the public affected by a public good should ideally be equal to the political community that makes the decision (Ostrom, et al. 1991, 147).
This conclusion is different from those of some other authors who are satisfied to notice that different approaches stress one or the other feature as important for the breakdown of the basic theorems of welfare economics (Cornes & Sandler 1994, 375). These authors look for empirical cases where the theory of public goods makes a contribution. My approach intends to theoretically capture the necessary features for the breakdown of private goods analysis or market performance.
“Collective consumption of goods...which all enjoy in common in the sense that each individual’s contribution of such a good leads to no subtraction from any other individual’s consumption of that good” (Samuelson 1954, 387). Even more explicit is the following: “The possibility or impossibility to apply an exclusion principle is less crucial than consumption externality, since often exclusion would be wrong where possible” (Samuelson 1969, 105). Other authors have observed the above-mentioned choice made by Samuelson (Cornes & Sandler 1994, 371). They do not point out, as I do, that Olson chooses nonexclusion as the crucial characteristic for his reflections.
Stretton and Orchard strongly attack this assumption. They point to a multiplicity of motives at work in the provision of public goods and then claim that the economist’s model is unrealistic and, thus, useless (Stretton & Orchard 1994, 78–9, 277). In my view, economic analysis of public goods can be used to demonstrate the presence of a challenge: an opportunity for collective gain and the difficulty of financing that opportunity. In my paper I do not choose between advocating for the creation of private incentives (merit increases in salaries; increase in insurance premium after an accident) or advocating societal support for responsible behavior (medals for heroic behavior in war or outstanding achievements; public praise for altruistic efforts).
This is the conclusion popularized in Galbraith, 1958. Conversely, others point out that there are theoretical cases (empirically extremely rare) where the Nash non-cooperative equilibrium is identical with the Pareto-optimal solution (Cornes & Sandler 1994, 374).
Thus Samuelson writes that there is an “Impossibility of decentralized spontaneous solution” (Samuelson 1954, 388–9) and “Although the optimum is definable, rational people will not, if left to themselves, be led by an invisible hand to the bliss point. On the contrary, it will pay for each rational man to dissemble, trying to mask his preference for the public goods and to engage in other game strategy maneuvers which, when all do them, will necessarily involve deadweight loss to society” (Samuelson 1958, 334).
“[My theory] is in fact an attempt to demonstrate how right Wicksell was to worry about the inherent political difficulty of ever getting men to reveal their tastes so as to attain the definable optimum.” (Samuelson 1955, 355)
A Clarke tax is a tax used to encourage true preference revelation for public good projects. A Clarke tax is imposed on person A if A’s preferred option wins because of A’s declared monetary interest in one particular approach to a public good. The amount of Clarke tax is equal to the amount that A’s preferred option would loose without A’s declared monetary interest. Take the case of Dutch elm disease, which can be approached by experts’ removal of sick elms or by doing nothing. If A declare that it is worth $40 to him to have nothing done and that option wins by $30 then the Clarke tax for A is $10 ($40–$30=$10) (Stevens 1993, 160–161).
Technically this can be achieved when there is a benefit-based tax system. For a discussion of the difficulties to implement such a tax principle see Kiesling (1992, 201 ff.). In the case in which all taxes would be Pareto-efficient payments for public goods one could argue that we have a voluntary exchange theory of taxation (Head 1974, 152 ff.).
On the other hand, if the public good is very meritorious, as with inoculations to prevent an epidemic, then, argues Mackscheidt, the government should use techniques appropriate for merit good provision in order to diminish the attractiveness of free-riding. Thus, the government should provide inoculation so much below cost that enough previous freeriders consider it in their own self-interest to buy inoculation at the reduced cost in order to prevent an epidemic (Mackscheidt 1997). Mackscheidt explicitly recognizes the connection between the concept of public and merit good for dealing with the free rider problem inherent in the provision of public goods. He also recognizes that “meritorisation” of a public good can only be done for sufficiently meritorious public goods.
David Schmidtz does not use the concept merit good, but he develops a similar argument when he writes that the use of governmental coercion requires additional arguments beyond the public good’s argument of efficiency (Schmidtz 1991, XVI). For Schmidtz, the fact that coercive production of public goods would involve the survival of society would be an acceptable argument (159). He mentions that others might use the argument of equality (XVI). He also demands that the government use “sufficiently delicate way [s]” to provide public goods (ibid.). See also footnote 112.
Sandler, expanding the ideas of Olson, gives an argument on why such abuses might be unavoidable or might even be pursued consciously. He writes, “To foster collective action... institutional design may have to engineer a sufficient skewness of benefits to promote participation among agents who are best positioned to make a difference” (Sandler 1992, 197). Thus, if the medical associations and insurance companies were best positioned to make a difference in creating a national health insurance, then the argument demands that these agents be given exaggerated benefits in order to ensure their participation. However politically effective this advice might be, it is a frightening argument in as much as it advices the state to be unjust in the name of effectiveness!
“The existence of larger unorganized groups with common interests is therefore quite consistent with the basic argument of this study...they also suffer if it is true” (Olson 1968, 167).
Because of the development of technology, the growth in population, and increased resource needs, Sandler, among others, argues that the relevance of the problem of collective action connected with public goods will increase (Sandler 1992, 200).
The first of these two ideas-opportunity for gain-is proven mathematically within a general equilibrium model for m public goods, k private goods and n consumers by D.K. Foley (1967, 1970) and is labeled “a generalization of Lindahl’s equilibrium solution” (1967, 66). The second idea is verbally conceded when the author writes: “There is...no reason to think that Lindahl equilibrium can be embodied by any working political process because it requires that individuals reveal information about their preferences under circumstances in which such a revelation would be to their disadvantage” (72).
Other authors ask themselves what kind of institutional arrangement (or incentive structure) would provide the equilibrium that best approaches the optimal allocation (Cornes & Sandler, 1994, 377 ff.) But such an approach presupposes the validity of the concept of public good, which is what I tried to establish in this paper.
This conclusion is similar to the position of others who also separate the two questions of, on the one hand, the potential gain from collective action and, on the other hand, the question of who needs to organize the collective action: the government or the private sector?(Adams & McCormick 1993, 113)
I therefore agree with the main thesis of a book by Levine that the correct starting point of economic science must be “political economy” (Levine 1977, IX). My defense for the concept of merit good in the previous chapter was a contribution in the same direction.
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(2008). Objecting to a Libertarian Attack on Governmental Functions in the Economy: The Concept of “Public Good”. In: Ethical Dimensions of the Economy. Studies in Economics Ethics and Philosophy. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-77111-1_7
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