Top PDF Public versus Private Provision of Public Goods

To model private provision in a dynamic setting, I consider an infinitely repeated version of the static voluntary contributions game. To model public provision, I apply Bernheim and Slavov’s (2009) notion of a dynamic Condorcet winner (DCW), which extends the Condorcet winner concept to dynamic settings. A DCW prescribes a policy for every possible history in such a way that for any history, the prescribed policy choice is majority preferred to any other policy given the implications of the current choice for future outcomes. In contrast to the static setting, a one-parameter tax system is not required to ensure the existence of DCWs. Indeed, DCWs exist with a completely unrestricted tax system, in which each individual pays a different positive or negative tax rate. Lifting the one-parameter restriction on the tax system allows income redistribution to be chosen jointly with the level of the public good. 1 While the DCW concept is intuitively appealing because of its similarity to the static Condorcet concept, applying it in practice can be analytically difficult, even for very simple problems (see, e.g., Bernheim and Slavov 2004, Bernheim and Slavov 2009, Slavov 2006). Thus, an additional contribution of this paper is to demonstrate how DCWs can be found computationally, allowing one to apply it to more complex problems.

him to the similar conclusion that the very same crowding out takes place between corporate provision and individual (what BBV called "private") provision and may even lead to an overall reduction in the level of the public good. In this context, CSR can be interpreted as a shift of public good provision between competing supply channels. More precisely, Besley and Ghatak (BG 2001) notice that public goods provision has dramatically shifted from public to mixed or complete private ownership in recent years, while Rose-Ackerman (1996) phrases the problem as the blurring of the analytically motivated division between for-pro…t, nonpro…t and public sectors in reality. To explain these observations, BG (2001) suggest that in the presence of incomplete contracts, optimal ownership is not a question of public versus private provision but simply should involve the party that values the created bene…ts most. Another interesting rationale provided by Besley and Ghatak (2007) identi…es economies of scope to be the decisive variable in determining e¢ ciency of impure public goods. The conclusion states that if economies of scope are absent, tasks should be segregated into specialized organizations (governments provide public goods and …rms private ones), while otherwise CSR is an e¢ cient way of delivering public goods. Both …ndings are of immediate importance to those authorities involved in the mechanism design of public good provision.

This paper is closely related to the analysis of the voluntary participation problem in a public good mechanism. Saijo and Yamato (1999) introduce a voluntary participa- tion game and analyze the number of agents voluntarily participating in the public good mechanism when they can freely decide to do so. In Saijo and Yamato’s (1999) model, all agents are assumed to have the same Cobb–Douglas utility function. 3 Healy (2010), Furusawa and Konishi (2011), and Konishi and Shinohara (2012) investigate the voluntary participation problem in other domains of utility functions. The main message of these studies is that if participation in a public good mechanism is not coerced, every agent has an incentive not to participate and to free ride the public good provided by partici- pants. Thus, even if a mechanism is constructed to provide desirable allocations, such as the Pareto-efficient allocation at its equilibrium, it is very difficult to provide all agents with an incentive for voluntary participation. In contrast, Shinohara (2009, 2011) points

This papers sheds light on the puzzling evidence that even though open source software (OSS) is a public good, it is developed for free by highly qualified, young and motivated individuals, and evolves at a rapid pace. We show that once OSS development is understood as the private provision of a public good, these features emerge quite nat- urally. We adapt a dynamic private-provision-of-public-goods model to reflects key aspects of the OSS phenomenon. In particular, instead of relying on extrinsic motives for programmers (e.g. signaling) the present model is driven by intrinsic motives of OSS programmers, such as user-programmers, play value or homo ludens payoff, and gift cul- ture benefits. Such intrinsic motives feature extensively in the wider OSS literature and turn out to add new insights to the economic anal- ysis.

Cornes and Sandler (2000), to our knowledge, provide the only other study that directly addresses the same general question as the one addressed in this paper. Using the standard one private good, one public good setting with linear production technology for the public good, they give conditions for achieving Pareto improvements through a purely redistributive lump-sum tax scheme that taxes both the contributors and the non-contributors of the original equilibrium. The intervention they study involves taxes that are not small and they observe that the possibility of Pareto improvements is positively related to the number of non-contributors, marginal evaluation of the public good by non-contributors, and the change in the private provision of public good resulting from an increase in contributors’ total wealth. The conditions they derive for Pareto-improving interventions all involve restrictions not on the primitives of their model, but on the values that some endogenous variables take in equilibrium, such as the sum of marginal rates of substitution for certain groups of households and “aggregate contribution response function” for a given set of positive contributors. On the other hand, our results hold for any number of non-contributors (including none), for a generic set of exogenous variables (or economies) and for all of the associated equilibrium values of the endogenous variables. 3

child care services and elderly care services represent the best examples of private goods fitting their model of PP. Applying this idea to our model, the group of users could be thought as being composed of people with small children and of people with elderly relatives who need to be taken care of. Thus, increasing the fraction of users from 8 to 15% might be interpreted as a way to measure the welfare gains achievable by publicly providing both child care- and elderly-care services. Admittedly, the measure that we get represents only a crude estimate of the welfare effects. The reason is that it rests on two implicit assumptions that are unlikely to be satisfied in practice. The first is that the unitary price of child care services and the unitary price of elderly care services are the same. The second is that users either need child-care or elderly-care services but not both at the same time. Notice however that, once public provision of child care services is supplemented by public provision of elderly care services, the relative merits of PP, as compared to tagging, are likely to be magnified. The reason is that if one can in principle think at the implementation of a tagging scheme that offers different tax schedules to parents and non-parents, it seems unfeasible to implement a tagging scheme that discriminates between agents who have to take care of their older relatives and agents who do not.

Rural development policy in the context of the present European Common Agricultural Policy (CAP) is closely linked to two concepts: diversity (multifunctionality) and sustainability as the former is a precondition of the latter. 1 In this essay we condition rural development on multifunctionality, defined as optimal diversity at community level in the spirit of Weitzman (1992). Specifically, we define the optimal diversity of rural community functions as a pure, non-excludable and non-rival public good (Rizov, 2004). We consider a general form of function in order to examine, in a private provision of public goods framework, what is the overall impact on community development of the redistribution of resources across two distinct groups of rural households.

When externalities exist both within and beyond the boundaries of a group, within-group cooperation may not occur for strategic reasons. This paper studies the effect of between-group interaction on endogenous determination of within-group cooperation in a simple two-group model of private provision of public goods. Our major results can be summarized as follows. First, between-group interactions play a dominant role in promoting within-group cooperation. In particular, when between-group interactions are in the same direction and weak (strong), within-group cooperation to provide public goods will (will not) occur in each group. On the other hand, when between-group interactions are in opposite directions or unidirectional, within-group cooperation will necessarily occur. Second, endogenous formation of cooperation is independent of the absolute (individual) levels of income as well as of income distributions

households supply labour l; and their gross income is y = wl. The households’ skill levels are private information, and the government must design a tax schedule based on observable income instead. The after-tax income of a household is given by x = y T (y), where T (y) is a non-linear tax schedule set by the government. The household can spend its after-tax income on two goods, a normal consumption good, c, and on another good, e, which is also provided by the government. The extent of government provision is denoted by g; the overall amount available to the household is e + g z. In other words, the households can top up the publicly provided good through their own purchases, e. The partially indirect utility functions of the households, for given pre and post tax income and public provision, are denoted by v(x; y; g).

related preventive services or disease control and vaccination/immunisation programs. Where needs are likely to go unmet because of market failure, there is a role for the government to step in. When the social benefits of services exceed the private benefits, there is likely to be sub-optimal provision and this often calls for government provision. As one example, people typically contract sexually-transmitted diseases (STDs) accidentally. By bearing some of the cost of detecting and treating STDs, governments confer benefits not just on the individuals treated, but also on those who may otherwise be at risk of infection. The same can be told about vaccination programs and other forms of diseases control. Another example of market failure in developing countries is the education of girls. Many families fail to see any benefit from sending girls to school or are averse to give up the household labour, or income, they make available. However, as a social investment, girls’ education is crucial because it is associated with improved opportunities for them to live longer, richer, and more rewarding lives — and with better health and social outcomes for their children. Thus, by encouraging the education of girls, through educational scholarships or consciousness-raising campaigns, governments can benefit both girls themselves as well as their families and communities. This example may be extended to the health sector, as the welfare of infants depends heavily on the health status of the mother. For goods of type C market failures mainly relates to the existence of co-ordination malfunctions induced by scale economies. There is the case of external economies that arise when a new highway is built or as the size of a telecommunication service increases. The market failure is that at a given point in time, current prices may not convey the information about prospective expansion that is relevant to attaining a lower cost of production (Scitovsky, 1954; Chenery, 1960).

Many economists work with excludable private and club goods that can be created, traded and consumed within a framework of property-rights and markets. That framework does not work very well for managing non- excludable public and common-pool goods that are subject to free riding in provision and consumption respectively. In their analysis of non- excludable goods, Ostrom et al. (1994) say a common-pool “situation” has turned into a “dilemma” when free riding leads to the suboptimal under-provision of a public good or over-appropriation from a common- pool good at the same time as institutional reform could conceivably improve matters. Their book is devoted to addressing these dilemmas (also known as open-access dilemmas) by understanding and changing institutions to reduce free riding. It is important to note that most of their analysis and suggestions apply to non-market settings where community or government power structures rely on non-cooperative or cooperative rules, respectively.

The third version of our main result holds under mildly more stringent conditions than Theorems 1 and 2. These are embodied in Assumptions 6 and 7 below. We believe that this version of our main result is worth pursuing for two main reasons. First of all, by contrast to Theorem 2 above, in our next theorem the Government does not need to be able to verify the maximum value of any of the agents’ endowments. Secondly, we believe that showing that our main result still holds when each agent is given the option to veto the proposed allocation is interesting in its own right. Theorem 3 below highlights the fact that in our model the agents can be considered free to opt out of the system entirely, and consume their endowment of private good ignoring the rest of the agents in the economy. Of course in equilibrium this will not be the case.

scal choices where the spending agencies that are responsible for the provision of public goods and services have private information about the costs they incur, and where citizens can u[r]

of private goods that are publicly provided in real economies, like day care services or elderly care services, consist of goods which can be characterized as being complements with labor. Two main results are obtained. The …rst is that tax dodging opportunities imply that non-separability between labor and other goods is neither a necessary nor a su¢ cient condition to make public provision of private goods a welfare-enhancing policy instrument. The second result is that the availability of avoidance opportunities tends to erode the case for topping-up public provision schemes. This might help explaining a discrepancy between the theory and practice of public provision of private goods. In fact, despite that many important publicly provided goods are complements with labor, actual provision schemes often appear to be intentionally designed to limit the opportunities to supplement.

Understanding how and why social connections can shape voluntary giving also has implications for understanding how government policies affect private giving. As many developed countries are increasing their reliance on the private sector to meet collective needs, we see a shift in the use of public resources from the funding of public provision to the subsidization of private provision. Our findings suggest that, in designing such subsidies, policymakers may be able to leverage on the relationship between private giving and social structure to maximize their impact; specifically, targeted subsidies towards fundraising effort at the local level may be an effective way of promoting private giving at the central level.

public good to all citizens. We find that changes in inequality do not have an unambiguous effect on the size of government. Our simulation results suggest that this effect will depend on the market structure for the vertically-differentiated product. Under perfect competition the relationship between equilibrium tax rate and equality is positive while the relationship becomes U-shaped under monopoly. Moreover, the assumption of a monopolistic structure in the production of the vertically-differentiated good has two important consequences for the size of the public sector: Firstly, we find a monopoly bias in the size of government in the sense that under monopoly the median voter will vote for a higher tax rate. Secondly, the presence of monopoly induces the median voter to be in favour of public provision of private goods (a positive tax rate), even in cases in which the public sector is so inefficient that under perfectly competitive conditions the political equilibrium would not be supportive of any positive tax rate.

It is not surprising that proposition 2 is affiliated to results that were earlier obtained for non-excludable public goods, while proposition 1 is more similar to results of the private goods literature. A welfare-maximizer has less intention to exclude any agents, as long as congestion effects and distribution costs do not force her to do so. On the other hand, the possibility of exclusion certainly is important. There is indeed a fundamental difference between the allocation rules (5) and (6), which will become clear when we consider the case of many consumers.

Making direct investments into infrastructure assets such as toll roads or power plants usually requires the longest time horizon for an investor since infrastructure assets have a long life of up to 60 years on average (Rickards 2008). Some concessions can even last as long as 99 years (Beeferman 2008, p. 7). Due to the physical nature of these assets, direct investments cannot easily be sold on and thus bear a high liquidity risk as well. Since infrastructure assets are, on average, very capital- intensive, there are also large capital requirements for single investors as well as the (usually small) group of co-investors. Furthermore, committing a high amount of capital over a long period of time into a single infrastructure asset exposes the investor to high political and regulatory risk. In case a country in which the asset is located changes the legal framework or even attempts an expropriation, investors can hardly react flexibly. Overall, only a few investors like insurance companies or pension funds would be capable of making investments with such characteristics and only recently have these investments become more popular with them (Inderst 2009, p. 3). There are special forms of direct infrastructure investments, the most prominent being those using Public Private Partnerships (PPPs) or project finance structures (see Välilä 2005 and Esty 2003 and 2010, respectively, for overviews of these forms of investment).

This paper analyzes the role of public and private responsibility in the provision of public goods. We emphasize that a typical public good will require many different inputs which raises the possibility of partnerships to exploit comparative advantages of different parties. But hold-up problems due to contractual incompleteness in specifying tasks discourage separation of ownership and management. We extend our analysis to examine the role of project design or “ideology” as a separate non-contractible input, and the possibility of crowding out in the form of a less caring government being elected because of the presence of private providers. The main application developed here is to NGOs in developing countries which, in the last two decades, have been increasingly involved in various capacities in the provision of a wide range of public goods and services.

Theorems 5 and 6 also pose a number of strong testable hypotheses that could be investigated by experimental economists who could, for example, impose identical payoff functions, or coul[r]