journal article
Mar 01, 1997
A theory of the theory of public goods
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References
36
[1]
The Pure Theory of Public Expenditure
Paul A. Samuelson
Review of Economics and Statistics
1954
10.2307/1925895
[2]
Randall G. Holcombe,Public Finance: Government Revenues and Expenditures in the United States Economy (St. Paul, Minn.: West Publishers, 1996), esp. chap. 5. This is an undergraduate public-finance textbook which discusses and explains the definition of public goods in detail, and raises some of the questions about public goods that are the subject of this paper.
[3]
Richard A. Musgrave,The Theory of Public Finance (New York: McGraw-Hill, 1959), p. 44. In his classic public-finance treatise, Musgrave uses a somewhat tautological definition that fits the pre-Samuelson concept, defining public goods as “goods the inherent quality of which requires public production.” He gives education and the military as examples, and defends them in a commonsense way by noting that there are compelling reasons for having both produced in the public sector. Of course, one might disagree with his assessment, but the point here is that prior to Samuelson's definition, public goods were thought of more generally (and less rigorously) as goods that are produced by government. See also the discussion by Dennis Epple and Richard E. Romano, “Public Provision of Private Goods,”Journal of Political Economy 104, no. 1 (February 1996): 57–84, on private goods produced by government, and how the mainstream economic literature has been won over to Samuelson's definition, and away from Musgrave's
[4]
Samuelson, “The Pure Theory of Public Expenditure”; and idem Samuelson, “A Diagrammatic Exposition of a Theory of Public Expenditure.”
[5]
Ibid Samuelson, “The Pure Theory of Public Expenditure”; and Idem Samuelson, “A Diagrammatic Exposition of a Theory of Public Expenditure.”
[6]
Francis M. Bator, “The Anatomy of Market Failure,”Quarterly Journal of Economics 72, no. 3 (August 1958): 351–79.
10.2307/1882231
[7]
James M. Buchanan, “Public Finance and Public Choice,”National Tax Journal 28, no. 4 (December 1975): 383–94.
10.1086/ntj41863132
[8]
A Pure Theory of Local Expenditures
Charles M. Tiebout
Journal of Political Economy
1956
10.1086/257839
[9]
Jora R. Minasian, Television Pricing and the Theory of Public Goods,”Journal of Law and Economics 7 (October 1964): 71–80.
10.1086/466600
[10]
Samuelson obviously does not agree with Minasian but the issues involved in this debate are worth careful consideration, see Paul A. Samuelson, “Public Goods and Subscription TV: Correction of the Record,”Journal of Law and Economics 7 (October 1964): 81–83.
10.1086/466601
[11]
See Friedrich A. Hayek, “The Use of Knowledge in Society,”American Economic Review 35, no. 4 (September 1945): 519–30; and Israel M. Kirzner,Competition and Entrepreneuroship (Chicago: University of Chicago Press, 1973).
[12]
Exclusion costs are paid by most vendors, whether they are selling public or private goods. Locks on vending machines and security guards at retail stores are resources employed to exclude non-paying customers from consuming the goods.
[13]
Private arrangements can also be made to allocate nonexcludable but Samuelsonian private goods. For a discussion see Elinor Ostrom,Governing the Commons: The Evolution of Institutions for Collective Action (New York: Cambridge University Press, 1990).
10.1017/cbo9780511807763
[14]
An interesting subject of inquiry, but beyond the scope of the present paper, is the institutional and legal structure within which the market provides incentives for the production of public goods. Neoclassical public goods theory is designed in a static equilibrium setting that ignores the institutional structure of exchange and the process by which contracts are written to encourage parties to engage in mutually-beneficial production and exchange.
[15]
Hayek, “The Use of Knowledge in Society”; and Kirzner,Competition and Entrepreneurship.
[16]
This argument is expressed by Harold M. Hochman and James D. Rogers, “Pareto Optimal Redistribution,”American Economic Review 59 (September 199): 542–57
[17]
The largest redistribution program in the United States is Social Security, which redistributes regardless of need. The same is true of farm price supports and other programs. For a discussion of the idea that most redistribution comes from middle income people and goes to middle income people, see Goerge J. Stigler, “Director's Law of Public Income Redistribution,”Journal of Law and Economics 13, no. 1 (April 1970): 1–10.
10.1086/466680
[18]
Jeffrey Rogers Hummel and Don Lavoie, “National Defense and the Public Goods Problem,”Journal des Economistes et des Etudes Humaines 5, nos. 2/3 (June/September 1994): 353–77.
[19]
Murray N. Rothbard,For a New Liberry (New York, Macmillan, 1973) gives a good explanation of how the private sector is a superior alternative to government in all cases, and defends the idea of an orderly anarchy. Bruce L. Benson,The Enterprise of Law: Justice Without the State (San Francisco: Pacific Institute, 1990) gives a detailed discussion of the evolution of private law, showing its advantages over public-sector legal systems.
[20]
A discussion of the literature, with empirical tests for many local public goods, appears in R.A. Gonzalez, T.S. Means, and S.L. Mehay, “Empirical Tests of the Samuelsonian Publicness Parameter: Has the Right Hypothesis Been Tested?”Public Choice 77, no. 3 (November 1993): 523–34.
10.1007/bf01047858
[21]
See Randall G. Holcombe and Russell S. Sobel, “Empirical Evidence on the Publicness of State Legislative Activities,”Public Choice 83, nos. 1/2 (April 1995): 47–58 for empirical evidence.
10.1007/bf01047682
[22]
Randall G. Holcombe,The Economic Foundations of Government (New York: New York University Press, 1994).
10.1007/978-1-349-13230-0
[23]
See John Rawls,A Theory of Justice (Cambridge, Mass.: Belknap, 1971); Robert Nozick,Anarchy, State, and Utopia (New York: Basic Books, 1974); and James M. Buchanan,The Limits of Liberty: Between Anarchy and Leviathan (Chicago: University of Chicago Press, 1975) for examples. Scott Gordon, “The New Contractarians,”Journal of Political Economy, 84, no. 3 (June 1976)L 573–90, has refereed to these three individuals as the new contractarians.
10.4159/9780674042605
[24]
See Leland B. Yeager, “Rights, Contract, and Utility in Policy Espousal,”Cato Journal 5, no. 1 (Summer 1985): 259–94.
[25]
The government will be better off the less force it has to use, so it has an incentive to entice people to cooperate. This issue is discussed below.
[26]
Buchanan,The Limits of Liberty.
[27]
Rawls,A Theory of Justice. Here he argues that institutions should be agreed upon from behind a “veil of ignorance.” From behind the veil, nobody would know what their identity would be after the veil is lifted. Thus, from behind the veil, everybody would have an equal probability of being any member of society after social institutions were designed. If one did not know whether they would be in the strong or weak group, it is unlikely that they would agree to give more to those who happened to be in the strong group after the veil was lifted.
[28]
Leaders of democratic governments also must find some comfort in the thoughts that if they are unseated, they can return to the private economy with enhanced profit opportunities, as opposed to living in exile, or worse. For a discussion of the merits of democratic government in this context, see Dan Usher,The Welfare Economics of Markets, Voting, and Predation (Ann Arbor: University of Michigan Press, 1992).
[29]
Holcombe,The Economic Foundations of Government.
[30]
In addition to helping Mr. Nelson pay the taxes the IRS claimed he owed, the concerts Mr. Nelson played also served to demonstrate in a very visible way that the IRS is serious about enforcing its claims.
[31]
For a discussion of the symbolic uses of politics and the way that politics conveys the perception of legitimacy on government actions, see Murray Edelman,The Symbolic Uses of Politics (Urbana: University of Illinois Press, 1964). See also Douglass C. North,Structure and Change in Economic History (New York: W. W. Norton, 1991); and idem, Murray Edelman “Ideology and Political/Economic Institutions,”Cato Journal 8 (Spring/Summer 1988): 15–28.
[32]
Governments need not be democratic in order to create the impression of legitimacy. If citizens believe that their rulers are appointed by the gods, or are themselves gods, such as the Pharaohs in ancient Egypt, or if citizens believe that hereditary monarchy is a legitimate way of determining political leadership, then the actions of leaders can carry with them the perception of legitimacy.
[33]
Steven Kelman, “‘Public Choice’ and Public Spirit,”Public Interest 87 (Spring 1987): 80–94.
[34]
Private schools do receive some state benefits. Scholarships, research grants, and so forth are obvious examples. They also may take advantage of non-profit status to avoid taxation. Increased subsidization of private schools might indicate a more democratic society in which interest groups wanting to have private education are able to weigh in with their political demands. A contrary viewpoint is that state subsidies go hand-in-hand with state control, and that the government would benefit from a takeover of private schools, facilitated by subsidization.
[35]
Despite working at a private institution, Samuelson, as the foremost promoter of the theory of public goods, has had great faith over the years in the government's ability to allocate resources efficiently. In the 1973 edition of his popular introductory textbookEconomics (9th ed. published by McGraw-Hill), published in the year of Ludwig von Mises's death, Samuelson forecast that despite the fact that the Soviet Union had aper capita income about half that of the United States, the Soviet Union was growing faster and could catch up with the U.S., as soon as 1990, and almost surely by 2010 (p. 883). His promotion of government production of public goods on efficiency grounds fits well with his more general ideas on the efficiency of government production.
[36]
Ludwig von Mises provides a good example of this. Because he steadfastly held to his idea that socialism is not a vialbe economic system, his work was not taken seriously by the majority of his profession until socialism collapsed, 20 years after his death.
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- Published
- Mar 01, 1997
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Cite This Article
Randall G. Holcombe (1997). A theory of the theory of public goods. The Review of Austrian Economics, 10(1), 1-22. https://doi.org/10.1007/bf02538141
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