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With the decrease in support, many will return to private interests, which with time resets the cycle. Supporters of Hirschman's model insist that the important factor in motivating people is that they are compelled by a leader's call to altruism. In John Kennedy's famous speech he implored the American people "to not ask what your country can do for you, ask what you can do for your country.

Scholars like Friedman do not think the free-rider problem is part of an unchangeable virtuous or vicious circle , but instead seek possible solutions or attempts at improvement elsewhere. An assurance contract is a contract in which participants make a binding pledge to contribute to building a public good, contingent on a quorum of a predetermined size being reached. Otherwise the good is not provided and any monetary contributions are refunded. A dominant assurance contract is a variation in which an entrepreneur creates the contract and refunds the initial pledge plus an additional sum of money if the quorum is not reached.

The entrepreneur profits by collecting a fee if the quorum is reached and the good is provided. In game-theoretic terms this makes pledging to build the public good a dominant strategy: the best move is to pledge to the contract regardless of the actions of others. A Coasian solution , named for the economist Ronald Coase , proposes that potential beneficiaries of a public good can negotiate to pool their resources and create it, based on each party's self-interested willingness to pay.

His treatise, "The Problem of Social Cost" , argued that if the transaction costs between potential beneficiaries of a public good are low—that it is easy for potential beneficiaries to find each other and organize pooling their resources based upon the good's value to each of them—that public goods could be produced without government action. Much later, Coase himself wrote that while what had become known as the Coase Theorem had explored the implications of zero transaction costs, he had actually intended to use this construct as a stepping-stone to understand the real world of positive transaction costs, corporations, legal systems and government actions: [11] [12].

I examined what would happen in a world in which transaction costs were assumed to be zero. My aim in doing so was not to describe what life would be like in such a world but to provide a simple setting in which to develop the analysis and, what was even more important, to make clear the fundamental role which transaction costs do, and should, play in the fashioning of the institutions which make up the economic system. The world of zero transaction costs has often been described as a Coasian world.

Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave. I argued in such a world the allocation of resources would be independent of the legal position, a result which Stigler dubbed the "Coase theorem".


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Thus, while Coase himself appears to have considered the "Coase theorem" and Coasian solutions as simplified constructs to ultimately consider the real 20th-century world of governments and laws and corporations, these concepts have become attached to a world where transaction costs were much lower, and government intervention would unquestionably be less necessary. A minor alternative, especially for information goods, is for the producer to refuse to release a good to the public until payment to cover costs is met.

Author Stephen King , for instance, authored chapters of a new novel downloadable for free on his website while stating that he would not release subsequent chapters unless a certain amount of money was raised. Sometimes dubbed holding for ransom , this method of public goods production is a modern application of the street performer protocol for public goods production.

Unlike assurance contracts, its success relies largely on social norms to ensure to some extent that the threshold is reached and partial contributions are not wasted. One of the purest Coasian solutions today is the new phenomenon of Internet crowdfunding. Here rules are enforced by computer algorithms and legal contracts as well as social pressure. For example, on the Kickstarter site, each funder authorizes a credit card purchase to buy a new product or receive other promised benefits, but no money changes hands until the funding goal is met.

If market provision of public goods is insufficient, then another possible solution is making their provision using non-market means. Government provision generally seeks to respond to the free-rider problem within its national boundaries, which gives citizens assurances that other individuals will not be free riding. While taxation ensures that the public good will be provisioned, it does not attempt to address the question of achieving market efficiency.

Issues regarding the economic efficiency of government provision are studied by public choice theory and public finance. Sometimes the government provides public goods using "unfunded mandates". An example is the requirement that every car be fit with a catalytic converter. This may be executed in the private sector , but the end result is predetermined by the state: the individually involuntary provision of the public good clean air.

Examples of public goods, a list of public goods

Unfunded mandates have also been imposed by the U. A government may subsidize production of a public good in the private sector. Unlike government provision, subsidies may result in some form of a competitive market. The potential for cronyism for example, an alliance between political insiders and the businesses receiving subsidies can be limited with secret bidding for the subsidies or application of the subsidies following clear general principles.

Depending on the nature of a public good and a related subsidy, principal—agent problems can arise between the citizens and the government or between the government and the subsidized producers; this effect and counter-measures taken to address it can diminish the benefits of the subsidy. Subsidies can also be used in areas with a potential for non-individualism.

For instance, a state may subsidize devices to reduce air pollution and appeal to citizens to cover the remaining costs. Similarly, a joint-product model analyzes the collaborative effect of joining a private good to a public good. For example, a tax deduction private good can be tied to a donation to a charity public good. It can be shown that the provision of the public good increases when tied to the private good, as long as the private good is provided by a monopoly otherwise the private good would be provided by competitors without the link to the public good.

The study of collective action shows that public goods are still produced when one individual benefits more from the public good than it costs him to produce it; examples include benefits from individual use, intrinsic motivation to produce, and business models based on selling complementary goods. A group that contains such individuals is called a privileged group.

A historical example could be a downtown entrepreneur who erects a street light in front of his shop to attract customers; even though there are positive external benefits to neighboring nonpaying businesses, the added customers to the paying shop provide enough revenue to cover the costs of the street light.


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  • The existence of privileged groups may not be a complete solution to the free rider problem, however, as underproduction of the public good may still result. The street light builder, for instance, would not consider the added benefit to neighboring businesses, leaving the rest of the street dark even when the total combined benefit to neighbors exceeds the cost of additional lamps. An example of the privileged group solution could be the Linux community, assuming that users derive more benefit from contributing than it costs them to do it.

    For more discussion on this topic see also Coase's Penguin. Another example is those musicians and writers who create music and writings for their own personal enjoyment, and publish because they enjoy having an audience. Financial incentives are not necessary to ensure the creation of these public goods. Whether this creates the correct production level of writings and music is an open question. Another method of overcoming the free rider problem is to simply eliminate the profit incentive for free riding by buying out all the potential free riders.

    A property developer that owned an entire city street, for instance, would not need to worry about free riders when erecting street lights since he owns every business that could benefit from the street light without paying. Implicitly, then, the property developer would erect street lights until the marginal social benefit met the marginal social cost. In this case, they are equivalent to the private marginal benefits and costs.

    While the purchase of all potential free riders may solve the problem of underproduction due to free riders in smaller markets, it may simultaneously introduce the problem of underproduction due to monopoly. Additionally, some markets are simply too large to make a buyout of all beneficiaries feasible—this is particularly visible with public goods that affect everyone in a country.

    Another solution, which has evolved for information goods, is to introduce exclusion mechanisms which turn public goods into club goods. One well-known example is copyright and patent laws. These laws, which in the 20th century came to be called intellectual property laws, attempt to remove the natural non-excludability by prohibiting reproduction of the good.

    PHILOSOPHY - Rational Choice Theory: What are Public Goods? [HD]

    Although they can address the free rider problem, the downside of these laws is that they imply private monopoly power and thus are not Pareto-optimal. For example, in the United States, the patent rights given to pharmaceutical companies encourage them to charge high prices above marginal cost and to advertise to convince patients to persuade their doctors to prescribe the drugs. The laws also end up encouraging patent and copyright owners to sue even mild imitators in court and to lobby for the extension of the term of the exclusive rights in a form of rent seeking.

    These problems with the club-good mechanism arise because the underlying marginal cost of giving the good to more people is low or zero, but, because of the limits of price discrimination those who are unwilling or unable to pay a profit-maximizing price do not gain access to the good. If the costs of the exclusion mechanism are not higher than the gain from the collaboration, club goods can emerge naturally. James M. Buchanan showed in his seminal paper that clubs can be an efficient alternative to government interventions.

    On the other hand, the inefficiencies and inequities of club goods exclusions sometimes cause potentially excludable club goods to be treated as public goods, and their production financed by some other mechanism. Examples of such "natural" club goods include natural monopolies with very high fixed costs, private golf courses, cinemas, cable television and social clubs.

    This explains why many such goods are often provided or subsidized by governments, co-operatives or volunteer associations, rather than being left to be supplied by profit-minded entrepreneurs. These goods are often known as social goods. Joseph Schumpeter claimed that the "excess profits", or profits over normal profit, generated by the copyright or patent monopoly will attract competitors that will make technological innovations and thereby end the monopoly.

    This is a continual process referred to as "Schumpeterian creative destruction ", and its applicability to different types of public goods is a source of some controversy. The supporters of the theory point to the case of Microsoft, for example, which has been increasing its prices or lowering its products' quality , predicting that these practices will make increased market shares for Linux and Apple largely inevitable. A nation can be seen as a club whose members are its citizens.

    Government would then be the manager of this club. This is further studied in the Theory of the State. The impact of social norms on the free-rider problem differs between cultural contexts, which may lead to a variance between results in research on the free-rider problem when applied cross-culturally. Social norms impact on privately and voluntarily provided public goods; however, is considered to have some level of effect on the problem in many contexts.

    Social sanctioning, for example, is a norm in it of itself that has a high degree of universality. Free riding is often thought only in terms of positive and negative externalities felt by the public. The impact of social norms on actions and motivations related to altruism are often underestimated in economic solutions and the models from which they are derived. Often on the foundation of game theory, experimental literature suggests that free riding situations can be improved without any state intervention by seeking to measure the effects of various forms of social sanctions.

    Peer-to-peer punishment, that is, when members sanction other members that do not contribute to the public good by inflicting a cost on "free-riders", is considered sufficient to establish and maintain cooperation. Although such punishment is often considered altruistic because it comes at a cost to the punisher, it is noted that the exact nature of motivation remains to be explored. For example, punishment works relatively badly under imperfect information where people cannot observe the behavior of others perfectly.

    Other research finds that social sanctions cannot be generalized as strategic in the context of public goods. Preferences between secret sanctions untraceable sanctions between players in the game and standard sanctions traceable sanctions including feedback between players in an otherwise identical environment on free riders did not vary significantly.

    Rather some individuals preferred to sanction others regardless of secrecy. In the game donators' deposits were only refunded if the donators always punish free riding and non-commitment among other individuals. Pool-punishment everyone loses their deposit if one donator doesn't punish the free rider provided more stable results than punishment without consideration of the consensus of the group.

    Individual-to-individual peer punishment led to less consistently applied social sanctions. Organizations such as the Red Cross , public radio and television or a volunteer fire department provide public goods to the majority at the expense of a minority who voluntarily participate or contribute funds. Contributions to online collaborative media like Wikipedia and other wiki projects, and free software projects such as Linux are another example of relatively few contributors providing a public good information freely to all readers or software users.

    Proposed explanations for altruistic behavior include biological altruism and reciprocal altruism. For example, voluntary groups such as labor unions and charities often have a federated structure, probably in part because voluntary collaboration emerges more readily in smaller social groups than in large ones e.

    Defining a Good

    The key feature of a response to the standard, self-interested view of public goods is the concept of a social goal. I have already indicated that our public goods are to be understood as instrumental to our social goals, understood here as together defining the kind of society we want to live in.

    This absence is relevant since the standard concept considers public goods as primarily instruments for the benefits of individuals, whether they be persons, groups, or nations. The conflict here is over the kind of teleology to emphasize in discussing public goods.

    So public goods help us reach a certain kind of society — one, say, that is healthy, that gives protection from damaging radiation, that is financially stable, and that is democratic. Whatever the kind of society aimed at, it is not to be treated as only a potential for individual benefits. Of course, such a potential will result from reaching a social goal, and we would have no reason for wanting a society of a certain kind apart from a potential for the individual benefits normally associated with a society of that kind. Still, there is more to reaching a society of a certain kind than merely developing a potential for the corresponding individual benefits.

    What then is missing in the standard concept? It is that having a society of a certain kind offers a forceful type of resistance to doing away with the potential for getting the corresponding individual benefits. The potential becomes robust since it is embedded within the way the society sees itself. Several things are involved in this appeal to the social. On the one hand, there is widespread agreement on one or more social goals.

    On the other hand, pursuing those goals is considered a project of the society rather than of would-be benefactors who though ostensibly favoring those goals turn out to have a different agenda. Clearly not all potentials for individual benefits come about in a way that satisfies these conditions. Hence they will not be protected as forcefully as those that come from pursuing a certain kind of society. This could be seen as promoting the kind of society in which drugs are accessible. The key source of this resistance to doing away with a public good is not, then, in the technology of a public good, in the bureaucracy that may operate it, or in financial angels.

    Instead, it comes from the continuing agreement on and commitment to a social goal by the people of a society. The commitment among Canadians to having a healthy society has created a robust potential for getting health benefits to all. One of the reasons that privatization is opposed is that it does away with such an assurance. Under pressure from the international financial institutions, the forceful resistance arising from the way a society sees itself may still be overwhelmed.

    Water privatization, for example, removes any assurance the poor in struggling countries can get potable water. In South Africa in the trade union federation, COSATU, allowed water to be privatized in Dolphin Coast after weakening its opposition to water privatization under pressure from the neoliberal leadership of the ruling African National Congress, with which it is closely allied. But in Bolivia in , a popular alliance defeated the privatization of water in Cochabamba that had been recommended by the World Bank and was being carried out by a consortium led by Bechtel.

    The dramatic nature of the resistance of that alliance stemmed from a generalized commitment to being part of a society with water accessibility. Another problem with the standard concept is that it relies heavily on externalities. It appeals to externalities in order to stay within the orbit of self-interest. Where externalities are ignored between two regions, there will be an equilibrium in regard to what each contributes toward a public good that is sub-optimal. That is, their total welfare could be enhanced by making greater contributions than they do. The equilibrium, called the Nash equilibrium, could be shifted to a higher welfare level if each region took account of the spillins coming from the other.

    In other words, this awareness would lead to a larger contribution by each to provision of the public good. Take the living wage campaigns going on around the US today. The people behind the living wage almost all make much more than the living wage. The majority of tax payers who will pay whatever increase in taxes is levied for a living wage are themselves making a living wage.

    Moreover, neither the advocates nor the majority of taxpayers anticipate a change, either upward or downward, in their economic situation as a result of the success of their campaigns. Why would they support a living wage where public funds are being used? The answer that I find compelling is that those who advocate and those who pay for it think it is fair. Reactions like these show that people have a sense of fairness. Moreover, having a sense of fairness supposes not just compassion with those seen as victims of unfairness but, if it is genuine, it also supposes a readiness to give support at least at some minimal level to doing away with that unfairness.

    There is then solidarity involved, the kind of solidarity involved in making the society a place that accords better with the aspirations we have for it. We saw this solidarity recently when free trade types said women in sweatshops in the Dominican Republic or in China were paid sub-living wages so clothing would be more affordable for people making higher wages.

    The response by samplings of US consumers was that they would be willing to pay a dollar or so more per item if it went toward bringing sweatshop workers out of poverty rather than to those in the chain of middlemen. The standard concept of public goods is, then, doubly flawed. But it is also flawed by failing to recognize that, since self-interest leads to defections from cooperation even when positive externalities are taken into account, solidarity is the needed motivation for having public goods.

    In turning to global public goods, I will assume that the notion of public goods in question is the new one elaborated in terms of social goals rather than the standard one I have criticized. I shall lay out several vexing issues about global public goods, and then in the last two sections, address those issues using the new concept of public goods. First, there is the statist view of public goods. We are used to thinking of public goods as institutions that are funded by a state and accountable to the state considered as a formation of the public.

    They are institutions since their existence calls for guarantees that no natural object can provide. In the absence of such guarantees, a dominant power in an area could distribute water, for example, in a way that denies adequate access to subordinate powers. The guarantees of access as well as the funds for maintenance seem to suggest that public goods are parts of states.

    Yet with global public goods we lack a counterpart to the state, which has played such a prominent part in national public goods. There is as yet nothing that can be considered a global state. If, though, we try to make do with something less than a state, we run into difficulties.

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    For one thing, there is no coercive force sufficient to back up either a call for funds or guarantees needed for equitable access. A second problem has to do with the dominance of self-interest. There must be cooperation in the maintenance of public goods. Without it people, or nations, will go their separate ways pursuing particularist solutions for what are in fact general problems.

    A familiar Hobbesian assumption about nations is that they function only in self-interested ways. Cooperation can of course be compatible with self-interest. This can be illustrated in the case of the effort to reduce ozone depletion by the abatement of chloroflurocarbons. Here international cooperation satisfied national interest. The cost to the United States, for example, of its share of global CFC abatement, as called for by the Montreal Protocol, was less than the health benefits to it. But there are many cases where it seems that self-interest rules out cooperation.

    This may be the case with the cooperation called for by the Kyoto Protocol on greenhouse gas abatement for slowing global warming. It is estimated that the cost to the US for its share of greenhouse gas abatement, as called for at Kyoto, is near to or greater than the cost of the environmental damage of even a doubling of those gases.

    A third problem has to do with disagreements among nations over social goals. It is hard to judge what national opinion might be, but gauging global opinion seems to take us into the realm of pure speculation. This doubt is important since a public good is not something a private individual or elite can create. It is an instrument for advancing toward a widely agreed upon social goal.

    Of course, even as an instrument, a public good must be a matter of agreement, for without it cooperation is difficult to muster. It is because the world is bisected in so many different ways that the notion of global agreement on social goals seems remote. To overcome this problem, Amartya Sen has suggested that we cease to think in terms of public goods as universals and instead think of them as pertaining to strands of affiliation across the world population, such as class, gender, and professional identity.

    Within each of these strands, it would not be utopian to think of arriving at agreement on social goals. It is true, of course, that it would be easier to get agreement within these strands. But many of these strands would never get beyond provincial demands were it not for their ability to project themselves into a broader public. To overcome such a provincialism, it is, though, necessary to deal with the problem of agreement across various strands of affiliation. What is needed for global public goods is more a cosmopolitan commitment than a world state.

    This would be a commitment to improve social existence everywhere through broad based agreements to coordinate autonomous forces. In recent years in South Africa, where the AIDS epidemic has hit hardest, there was coordination between various forces to gain access to essential medicines. The multinational pharmaceuticals were ready to take actions against South Africa if its law that threatened patent rights was to be implemented. The campaign against the narrow interests of the multinationals, against the wavering of the government of South Africa, and against the defense of patents by the wealthy nations succeeded in making a modest step forward toward turning drugs into global public goods.

    The kind of cosmopolitan commitment made by these non-governmental forces will be vital in the struggle for global public goods. What is lacking in such a coordination of forces is the permanence that makes for a robust potential. It is imperative to institutionalize the coordination to achieve this permanence. The institutionalization need not, though, call for a world state. After all, the multinationals themselves coordinate their activities in pursuit of their narrower goals through the World Trade Organization and the World Bank, and they are neither states nor parts of a world state.

    Of course, as understood here, multinational corporations, despite their global reach, have no cosmopolitan commitment, since their commitment is not to social improvement everywhere but to their own profitability. Still, the institutions that emerge from cosmopolitan commitments may have to rely on states in numerous ways, just as the institutions that promote the profitability of the multinational corporations have to rely on states.

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    As global public goods develop through cosmopolitan commitment, they will have to rely, in part at least, on revenues from states. This reliance is less likely to turn them away from the social goals they pursue if they stay based on non-governmental bodies with cosmopolitan commitments. So our response to the view that public goods, and in particular global public goods, must be statist has two parts.

    Second, to the extent that they rely on nation states , that reliance is tempered by the cosmopolitan commitment of a variety of non-governmental groups.

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    As regards self-interest, we have seen that people will work for public goods out of a sense of solidarity even where there is no narrowly self-interested reason for doing so. If the state acts only from self-interest, then it will decline to pursue social goals whose benefits to the state may be less than their costs to it.

    Their narrow self-interests lead them too often into hostilities and manipulations. Instead, it is sufficient to observe that states can be moved to show constraint in view of the activity of non-governmental bodies with a cosmopolitan commitment. Even where capitalist states exist, this gives an opening for starting global public goods.

    The Hobbesian view of states gives them altogether too much autonomy from non-governmental activity with cosmopolitan intent. The important point is that such openings have come about because of the solidarity those groups have with the far flung victims of one form or another of oppression. So there is a kind of justice-from-below that makes it impossible for states to pursue solely their narrow self-interests.