Private provision of public goods can be efficient

Economists have long believed that private provision of public goods will be inefficient, though recently some have argued that altruism may mitigate the inefficiencies. Without altruism, agents contribute to the point where marginal cost equals their private marginal benefits. With altruism, they contribute more and hence are closer to the point where marginal cost and total marginal benefits are equated. In an earlier paper (Bagnoli and Lipman, 1989), we showed that private provision need not be inefficient. In a very natural model of private provision without altruism, we showed that the set of (undominated perfect) equilibrium outcomes is identical to the core. Here we consider the effect of altruism on private provision. Altruism essentially creates more public goods because the well-being of others becomes a public good. We show that our model of private provision still has efficient equilibria under a wide variety of circumstances. Interestingly, the equilibria may be inefficient when agents are concerned about the effect of private provision on the distribution of wealth. Intuitively, the game we consider is a very powerful instrument for efficient private provision, but must be supported by other instruments if the set of public goods is expanded too far.We wish to thank Jim Andreoni, Ted Bergstrom, and an anonymous referee for helpful comments and to acknowledge financial support from the National Science Foundation through NSF Grant SES-8520296. Of course, any remaining errors are our responsibility.     

The private stake in public goods: overcoming the illogic of collective action

Conclusion According to the Logic of Collective Action, most actions in the service of common interests are either not logical or not collective. In a large group, the argument goes, individual action counts for so little in the realization of common interests that it makes no sense for a person to consider group interests when choosing a course of personal conduct. Only private interests are decisive. Their fulfillment, at least, depends in a substantial way on one's own behavior. Individual actions designed to achieve private advantage are therefore rational. Actions aimed at collective goods are a waste of time and effort. Occasionally, of course, a person acting on the basis of private interests may inadvertently provide some collective good from which many other people derive benefit. This is what happens in the case of the Greek shipping tycoon. But it occurs only because one person's private good fortuitously coincides with the collective good of a larger group. From the tycoon's perspective, there are no collective interests at stake in the sponsorship of an opera broadcast, only his own private interests. Nor does his decision to underwrite a broadcast take account of the other people who will listen to it. His action is a solitary one designed to serve a private interest, and it is perfectly consistent with Olson's argument concerning the illogic of collective action, because it is not grounded in collective interest and is not a case of collective behavior. Olson's theory permits people to share collective interests but not to act upon them voluntarily. The only acknowledged exception occurs in the case of very small groups, where each member's contribution to the common good represents such a large share of the total that any person's default becomes noticeable to others and may lead them to reduce or cancel their own contributions. In this instance, at least, one person's actions can make a perceptible difference for the chance of realizing collective interests, and it is therefore sensible for each person to consider these collective interests (and one another's conduct) when deciding whether or not to support group efforts. Outside of small groups, however, Olson finds no circumstances in which voluntary collective action is rational. But in fact the conditions that make collective action rational are broader than this and perhaps more fundamental to Olson's theory. They are inherent in the very ‘collectiveness’ of collective goods - their status as social or group artifacts. In the absence of a group, there can be no such thing as a collective good. But in the absence of mutual awareness and interdependence, it becomes extremely difficult to conceive of a social group. The assumption that group members are uninfluenced by one another's contributions to a collective good is no mere theoretical simplification. It may be a logical impossibility. Being a member of a group, even a very large one, implies at the very least that one's own conduct takes place against a background of group behavior. Olson's assumptions do not acknowledge this minimal connection between individual and group behavior, and they inhibit recognition of the elementary social processes that explain why slovenly conduct attracts special attention on clean streets, or why the initial violations of group norms are more momentous than later violations. It may be argued, of course, that the groups of Olson's theory are not functioning social groups with a collective existence, but only categories or classes of people who happen to share a collective interest. The logic of collective action is intended precisely to show why these ‘potential’ groups are prevented from converting themselves into organized social groups whose members act in a coordinated way. In such latent groups, perhaps, members are unaware of one another, and Olson's assumption that they are uninfluenced by one another's conduct becomes a reasonable one. Another implication, however, is that Olson's theory is subject to unacknowledged restrictions. The logic of the free ride is for potential groups. It may not hold for actual ones. The distinction is exemplified, in the case of public sanitation, by the difference between what is rational on a clean street and what is rational on a dirty one. The logic of the free ride does not make sense for the members of an ongoing group that is already operating to produce collective goods such as public order or public sanitation. While this represents a notable limitation upon the scope of Olson's theory, it apparently leaves the logic of collective action undisturbed where potential or latent groups are concerned. But suppose that a member of an unmobilized group wants her colleagues to contribute to the support of a collective good that she particularly values. Her problem is to create a situation in which such contributions make sense to her fellow members. As we have already seen in the case of the neighborhood street-sweeper, one possible solution is to provide the collective good herself. If it has the appropriate characteristics, its very existence may induce other members of the latent group to contribute to its maintenance. This is not one of those cases in which one person's private interest fortuitously coincides with the collective interest of a larger group. The neighborhood street-sweeper is acting on behalf of an interest that she is conscious of sharing with her neighbors. Her aim is to arouse collective action in support of that interest. She does not expect to pay for public cleanliness all by herself, or to enjoy its benefits all by herself. Her role bears a general resemblance to the one that some analysts have defined for the political entrepreneur who seeks to profit personally by supplying a collective good to the members of a large group (Frohlich, Oppenheimer, and Young 1971). Like the neighborhood street-sweeper, the entrepreneur finds it advantageous to confer a collective benefit on others. But the similarity does not extend to the nature of the advantage or the manner in which it is secured. The entrepreneur induces people to contribute toward the cost of a collective good by creating an organizational apparatus through which group members can pool their resources. The existence of this collection mechanism can also strengthen individual members' confidence that their colleagues' contributions are forthcoming. What the entrepreneur gains is private profit - the difference between the actual cost of a collective good and the total amount that group members are prepared to pay for it. By contrast, the neighborhood street-sweeper induces support for a collective good, not by facilitating contributions, but by increasing the costs that come from the failure to contribute. As a result of her efforts, she gains a clean street whose benefits (and costs) she shares with her fellow residents. She takes her profit in the form of collective betterment rather than private gain, and her conduct, along with the behavior of her neighbors, demonstrates that effective selfinterest can extend beyond private interest. Self-interest can also give rise to continuing cooperative relationships. The street-sweeper, acting in her own interest, brings into being a cooperative enterprise in which she and her fellow residents jointly contribute to the production of a collective good. Cooperation in this case does not come about through negotiation or exchange among equal parties. It can be the work of a single actor who contributes the lion's share of the resources needed to establish a collective good, in the expectation that its existence will induce others to join in maintaining it. The tactic is commonplace as a means of eliciting voluntary collective action, and it operates on a scale far larger than the street or the neighborhood. Government, paradoxically, probably relies on it more than most institutions With its superior power and resources, it may be society's most frequent originator of voluntary collective action. Its policies, imposed through coercion and financed by compulsory taxation, generate a penumbra of cooperation without which coercion might become ineffectual. By providing certain collective goods, government authorities can move citizens to make voluntary contributions to the maintenance of these goods. The stark dichotomy between private voluntary action and public coercion - one of the mainstays of American political rhetoric - may be as misleading as the identification of self-interest with selfishness. There is more at stake here than the voluntary production of collective goods. Continuing cooperative behavior can have other results as well. Once group members begin to expect cooperation from one another, norms of cooperation and fairness are likely to develop. Axelrod (1986) has suggested that modes of conduct which have favorable outcomes for the people who pursue them tend to evolve into group norms. Public-spirited action that serves self-interest could therefore engender a principled attachment to the common good, undermining the assumption of self-interestedness that gives the logic of collective action its bite. Laboratory studies of cooperative behavior have already demonstrated that experimental subjects have far less regard for narrow self-interest than rational choice theory requires (Dawes 1980). In one extended series of collective action experiments, however, Marwell and Ames (1981) found a single group of subjects who approximated the self-interested free-riders of Olson's theory. They were graduate students in economics.     

Efficiency in the provision of pure public goods by private citizens

This paper raises an old question and proposes a new answer. The question is, “Must public goods be produced by governments?” The consensus answer is “Yes,” on the grounds that transaction costs related to group size prevent all potential consumers of a public good from entering into voluntary arrangements to produce efficient levels of that good. Government intervention thus is required to achieve efficiency. Yet many obvious examples of public goods are not financed or even subsidized by government. Conspicuous examples of this phenomenon include the development of important innovations in technique in fields such as music (Bach and Beethoven), literature (Defoe, Dickens and Shakespeare, not excepting Homer or Adam Smith), and the visual arts (Cezanne), not to mention many crucial scientific discoveries. Indeed, the obvious public-good aspects of scientific knowledge induced many private societies to offer prizes for particular innovations. Two questions are raised by the private, voluntary provision of nonrival outputs or inputs: (1) what conditions contribute to this phenomenon, and (2) can voluntary provision come “close” to efficient provision? We suggest in this paper that, under certain conditions, the gains from many public goods whose benefits reach nationwide populations are largely realized at group sizes far smaller than even county or municipal jurisdictions.     

论中国县级政府在公共物品提供中的职能定位

中国政府职能划分普遍存在“职责同构”现象,地方政府与中央政府在公共物品提供上存在职责不清现象。作为与居民联系最密切的县级政府,在职能划分上存在诸多困境。本文在分析了中国县级政府的职能困境和比较国外县级政府在公共物品提供方面的经验作法後,提出了县级政府在公共物品的供给土应准确进行职能定位。     

The private provision of public goods via dominant assurance contracts

Many types of public goods can be produced privately by profit seeking entrepreneurs using a modified form of assurance contract, called a dominant assurance contract. I model the dominant assurance contract as a game and show that the pure strategy equilibrium has agents contributing to the public good as a dominant strategy. The game is also modelled under incomplete information as a Bayesian-Nash game.     

Bureaucratic choice and nonoptimal provision of public goods: Theory and evidence

Local governments' allocation decisions are modeled in the context of a slack maximizing bureaucrat who produces public goods according to a production function that includes both provision and the constituents' socio-economic characteristics. To gain a better understanding of the determinants of slack, comparative statics and an empirical study of Illinois municipalities are conducted. The indirect output distance function provides efficiency scores upon which we regress several variables, representing socio-economic characteristics, costs and competition measures. We find that slack or inefficient behavior is associated with richer communities, lower education levels and a lack of competition for residents among municipalities.     

From weakest-link to best-shot: The voluntary provision of public goods

It has traditionally been assumed that the socially available amount X of a public good is the simple sum of the separate amounts x _i produced by the i = 1, ..., I members of the community. But there are many other possibilities of practical importance. Among them are: (i) Weakest-link rule, where the socially available amount is the minimum of the quantities individually provided, and (ii) Best-shot rule, where the socially available amount is the maximum of the individual quantities. The former tends to arise in linear situations, where each individual has a veto on the total to be provided (e.g., if each is responsible for one link of a chain); the latter tends to arise when there is a single prize of overwhelming importance for the community, with any individual's effort having a chance of securing the prize. In comparison with the standard Summation formula of ordinary public-good theory, it is shown that underprovision of the public good tends to considerably moderated when the Weakest-link function is applicable, but aggravated when the Best-shot function is applicable. In time of disaster, where the survival of the community may depend upon each person's doing his duty, the conditions for applicability of the Weakest-link rule are approximated. This circumstance explains the historical observation that disaster conditions tend to elicit an extraordinary amount of unselfish behavior.     

Voluntary purchase of public goods

This paper examines the application of Buchanan's ‘independent adjustment’ model of public good provision to individual donations to voluntary or non-profit organizations. An individual's donation function is a simple transformation of the Marshallian demand function; consequently donation functions ‘reveal,’ in principle, preferences for public goods. The existence of a tax-subsidy system sustaining a Pareto optimal level of provision is demonstrated, and the relationship to the existing subsidy scheme in the U.S. is examined. Finally, two implications of the model suggest that it is not appropriate as a representation of actual donor behavior.