A reconsideration of the problem of social cost: Free riders and monopolists

Summary. One version of the Coase Theorem is, If property rights are fully allocated, competition leads to efficient allocations. This version implies that the public goods problem can be solved by allocating property rights fully. We show that this mechanism is not likely to work well in economies with global externalities because the privatized economy is highly susceptible to strategic behavior: The free-rider problem manifests itself as a complementary monopoly problem in an associated private goods economy. Thus, our work relates the validity of the Coase Theorem to the literature on the incentives for strategic behavior in economies with complementarities. Received: 12 May 1999; revised version: 9 July 1999     

Dynamic dissolutions and unifications

I reexamine the key results from the literature on the size and number of countries under different political institutions in a simple dynamic model. I find that the canonical static results that democracies lead to too many too‐small countries and that Leviathans lead to too few too‐large countries no longer necessarily hold. The key dynamic element that drives the new results is that public goods are modeled as public capital; this changes the incentives to unify or divide countries. I also show that there are hysteresis effects on the size and number of countries; that is, arbitrary initial configurations of national boundaries may tend to persist because of the initial public capital location decisions they promote.     

Public goods in networks

This paper considers incentives to provide goods that are non-excludable along social or geographic links. We find, first, that networks can lead to specialization in public good provision. In every social network there is an equilibrium where some individuals contribute and others free ride. In many networks, this extreme is the only outcome. Second, specialization can benefit society as a whole. This outcome arises when contributors are linked, collectively, to many agents. Finally, a new link increases access to public goods, but reduces individual incentives to contribute. Hence, overall welfare can be higher when there are holes in a network.     

Confucianism and the Legalism: A model of the national strategy of governance in ancient China

The Confucian school emphasizes family value, moral persuasions, and personal relations. Under Confucianism, there is a free-rider issue in the provision of efforts. Since national officials are chosen through personal relations, they may not be the most capable. The Legalist school emphasizes the usage of incentives and formal institutions. Under the Legalism, the ruler provides strong incentives to local officials which may lead to side effects because some activities are noncontractible. The cold-blood image of the Legalism may alien citizens. By exploiting the paternalistic relationship between the ruler and the ruled under Confucianism and the strength of institution-building under the Legalism, the ruler may benefit from a combination of Confucianism approach and the Legalism approach as the national strategy of governance. As each strategy has its pros and cons, which strategy of is optimal depends on factors such as the minimum enforceable level of public service and the level of institution building costs.     

The Political Economy of the Global Environment

Issues of the ‘global commons’ have secured a prominent place in environmental discourse. The temperature-regulating functions of the global atmosphere and radiation control functions of stratospheric ozone offer clear examples of true public goods. Other environmental assets, such as biodiversity and forests, are treated as if they are public goods, but in reality are complex mixtures of private goods, local public goods and global public goods. The approach to the provision and protection of these goods has tended to focus on the development of international agreements, such as those at the Rio de Janeiro ‘Earth Summit’ in 1992. But do these agreements contain the relevant incentives to conserve the global commons? Much depends on one's view of human nature. The Scottish economic tradition suggests that unless incentives focus on ‘self love’, as postulated by Hume and Smith, improvements will, at best, be marginal. A richer array of policy measures is obtained by analysing the potential for ‘global bargains’, trades that improve the environment whilst making each party better off. The souls of Hume and Smith surely approve recent developments in practical global bargains.     

Corruption and term limits: An investment approach

In many developing countries, there seems to be more corruption. In this paper, an explanation is proposed. It is argued that term limitations give presidents the incentives to increase their personal income in the present period by diverting resources that could be used for the production of public goods. Under a term limitation, such an opportunity will not appear again.     

THE PROVISION OF PUBLIC INPUTS AND FOREIGN DIRECT INVESTMENT

A small open economy model is developed that incorporates direct and indirect effects on multinational location decisions associated with public input provision. It is shown that when agglomeration externalities are present in local intermediate goods markets, public input provision can affect multinational firms directly by lowering the fixed costs of production and indirectly by decreasing the costs of intermediate inputs, but growth is contingent on achieving a critical mass of investment. It is further shown that the effectiveness of a policy of public input provision over a policy of subsidy incentives is critically dependent on key market parameters in the host country . ( JEL F2, H4, O1)     

PRIVATE PROVISION OF PUBLIC GOODS AND INFORMATION DIFFUSION IN SOCIAL GROUPS

I describe a dynamic model of costly information sharing where private information affecting collective‐value actions is transmitted by social proximity. Individuals make voluntary contributions toward the provision of a pure public good, and information transmission about quality of provision is a necessary condition for collective provision to take place in a stationary equilibrium. I show that unlike in the case of private goods, better informed individuals face positive incentives to incur a cost to share information with their neighbors and that these incentives are stronger and provision of the pure public good greater the smaller are individuals' social neighborhoods.     

Publicly Provided Private Goods and Redistribution: A General Equilibrium Analysis

Public provision of private goods is examined within a self-selection framework where production depends on labour supply of different households and the level of public provision. It is shown that productivity and wage-structure effects can create a role for public provision, even if preferences are weakly separable between goods and leisure. Public provision of education may offer an intuitively appealing case for the production-side impacts. We also address the reasons for public provision in a dynamic, overlapping generations economy, whereby public provision may affect efficiency and social costs of redistribution of future generations as well.
JEL classification : H 23; H 42     

THE ELECTORAL COSTS OF SPECIAL INTEREST POLITICS WHEN VOTERS ARE IGNORANT*

It is widely believed that the free-rider problem and the incentives to build minimum winning coalitions cause politics to reflect the preferences of special interest groups. Nevertheless, if voters do not know all the positions of all the candidates, then a candidate who proposes policies that benefit the public at large may defeat a candidate who depends on the support of special interests. Moreover, even if the latter candidate can win, he must use a publicity strategy which allows any voter to hear of proposals that benefit groups other than the voter's.     

Institutions, motivations and public goods: An experimental test of motivational crowding

Contributions to public goods can be motivated by intrinsic factors such as warm glow altruism and fairness, as well as extrinsic incentives such as sanctions and payments. However, psychological studies suggest that formal extrinsic incentives may crowd out intrinsic motivations. In an experimental study of individual contributions to a public good we find that suasion crowded in voluntary contributions, while an extrinsic incentive in the form of a regulation led to crowding out. This has implications for the design of public policy where ranges of motivations are present.     

Homogeneity masquerading as variety: the case of horizontal innovation models

The literature on ‘horizontal innovation’ claimsto analyse cases where unbounded endogenous growth comes froman increasing variety of intermediate goods. The present papercontends that a good sample of representative models in thisliterature share two essential assumptions regarding productiontechnology, and that these assumptions together amount to assumingthe homogeneity of various intermediate goods. In these models,there is no variety of intermediate goods to increase owingto R&D activities; what increases is a mass of a singlehomogeneous intermediate good.     

Developmental aspects of China��s trade pattern: The role of imported intermediate goods

This paper studies the relationship between China’s trade and its economic development. More than two centuries ago Adam Smith argued that it is the use of imported intermediate goods that constitutes the vector through which openness improves productivity. Imported intermediate goods can relieve what would otherwise be key constraints allowing faster growth, together with better human development. While China’s trade reform is often related to its productivity growth, there has been remarkably little attention to the relationship between imports and productivity growth at the industry-sectoral level. Our paper examines the sector-specific impact of intermediate goods utilizing a time series for the share of imported intermediate goods in each sector derived from our model calculations. Our study indicates that imported intermediate goods are playing an important role in the growth of Chinese productivity.     

Non-bidding equilibrium in an ascending core-selecting auction

This paper investigates the perfect Bayesian equilibrium in an ascending-price core-selecting auction, which is recently used in some countries? spectrum license auctions. We suppose that there are two identical items, two small bidders, and one large bidder. The small bidders demand only one unit of the item, whereas the large bidder wants both units. Package bidding ensures that the large bidder faces no exposure problem and behaves truthfully. However, one of the small bidders stops bidding at the beginning in the equilibrium. Although small bidders generally face the free-rider problem and have incentives to underbid, once a bidder is the only small one remaining, he bids truthfully. Stopping early induces the remaining bidder to behave truthfully. Hence, each small bidder wants to be the first to stop bidding. The free-rider problem is considerably mitigated when there are many small bidders.     

The effects of (incentivized) belief elicitation in public goods experiments

Belief elicitation is an important methodological issue for experimental economists. There are two generic questions: 1) Do incentives increase belief accuracy? 2) Are there interaction effects of beliefs and decisions? We investigate these questions in the case of finitely repeated public goods experiments. We find that belief accuracy is significantly higher when beliefs are incentivized. The relationship between contributions and beliefs is slightly steeper under incentives. However, we find that incentivized beliefs tend to lead to higher contribution levels than either non-incentivized beliefs or no beliefs at all. We discuss the implications of our results for the design of public good experiments.     

论公共产品概念的现实意义

萨缪尔森的公共产品概念定义了产品的两极,布坎南等人的后续研究补充了产品类型的中间段;公共产品概念的现实意义受到了质疑;公共产品本质观和对排他成本的重新认识,为政府提供某些产品提供了理论依据;对产品公共性纯度的认识有利于政府确认公共产品的受益对象.     

Time,congestion, and public goods

This paper considers intermediate and final public goods as stocks from which consumers obtain a flow of services by expending scarce time. The services so obtained depend on the time other individuals spend utilizing these same goods. Optimality conditions are derived for both stock levels and flow usage where tolls are required to cover costs. The elasticities in the resulting formulae are endogenous in the sense that only certain values are permissible. In the intermediate good case, at the optimum, the public good will always be locally optimally supplied and locally underutilized to a degree which depends on the congestion parameter.     

Five proposals for a European model of the countryside

The inability of European institutions to reform the common agricultural policy is a landmark case of political failure. The CAP has led to several policy failures. It helps mainly the well-off farmers in a very wasteful way; it provides excessive incentives for non-competitive primary commodities, specialization and intensification, with adverse impacts on rural natural resources. Economic principles support long-term programmes aimed only at market failures: the respect of environmental norms and the provision of rural public goods in line with society's demands. While not interfering with market mechanisms, the instruments we propose acknowledge the diverse economic potential of European rural areas and the variety of goods and services provided by the rural space. Political feasibility and social concerns may require a transitory period of direct income support for current farmers. We argue, however, against any direct payments for new farmers in order to prevent future dependence on public support.
Large established farmers are those who stand to lose the most from our proposals. However, they and those who represent them have to face the inefficiencies of the current policy and society's demands. Farmers deserve rewards from public funds for the rural public goods they provide, but these rewards should be decoupled and targeted. A profound reform is required if we are to preserve a 'European model of the countryside'.     

Efficiency and group size in the voluntary provision of public goods with threshold preference

What is the optimal group size in the voluntary provision of public goods in a purely altruistic economy? The popular consensus on this fundamental question is that the free-rider problem worsens as the group size increases. This study provides a counterexample of the consensus by featuring plausible threshold preferences for certain typical public goods. Under these preferences, marginal utility hardly diminishes below a threshold level, but declines significantly in close proximity to the threshold and nearly drops to zero above the threshold. We find that threshold preferences significantly reduce inefficiency. We also show that if marginal costs increase, then the threshold preferences lead to a partly positive relationship between efficiency and group size, which allows us to detect the locally efficient group size. Moreover, the locally efficient group size is proportional to the slope of the marginal costs as well as the threshold of marginal utility.     

Public intermediate goods and distortionary taxation

In the Pigovian tradition, when public intermediate goods are financed by distortionary taxation, expenditure should not be carried so far as to equate the sum of the marginal productivities with the marginal cost. This paper shows how this rule may break down when commodity taxes are used to finance public intermediate goods.