PH336 Public Goods
PUBLIC CHOICE, PUBLIC BADS AND OSTROM: Wyn Grant
Public choice theory
Case study: climate change as a global public bad
Olson: Paradox of choice - the costs of a good is general, but the benefits are
diffuse.
Ostrom: A theory of collective action (or inaction) is therefore necessary.
“The really big puzzle in the social sciences is the development of a
consistent theory to explain why cooperation levels vary so much and why
specific configurations of situational conditions increase or decrease
cooperation in first or second level dilemmas”
Ostrom’s key insights look at human cooperation, and the conditions under which
they do so effectively:
Rationality is bounded, (first proposed by Simon) and based on ‘satisficing’
(meeting an aspiration level under constraints). People seek ‘good enough’
solutions, and do not necessarily optimise if it allows them to take shortcuts.
This is as a result of search costs that are unknown when we begin.
People intend to be rational, but cannot be so to the extent that they would
like. The limited capacity of decision-makers and processes prevent anything
approaching complete rationality. Economists would argue that this is still
optimisation behaviour, but including the ‘costs of searching’ as an
externality.
Adam Smith recognised that there are goods advantageous to the whole of
society, however that no individual or small group could bear the costs alone.
Public Goods
Public goods are non-rivalrous and non-excludable.
Club goods are non-rivalrous but excludable.
Common goods are rivalrous but non-excludable
Private goods are rivalrous and excludable.
European public goods are an interesting case of balancing these - the dissolution of
national boundaries may reduce transaction and production costs (e.g. environment). But
public goods and bads can be perceived differently across countries or communities.
Hardin’s ‘tragedy of the commons’ is a basic text in this field. The short-run rational
maximiser would seek an immediate pay-off from using the common good, despite the
long-run costs to his community.
PUBLIC CHOICE, PUBLIC BADS AND OSTROM: Wyn Grant
Public choice theory
Case study: climate change as a global public bad
Olson: Paradox of choice - the costs of a good is general, but the benefits are
diffuse.
Ostrom: A theory of collective action (or inaction) is therefore necessary.
“The really big puzzle in the social sciences is the development of a
consistent theory to explain why cooperation levels vary so much and why
specific configurations of situational conditions increase or decrease
cooperation in first or second level dilemmas”
Ostrom’s key insights look at human cooperation, and the conditions under which
they do so effectively:
Rationality is bounded, (first proposed by Simon) and based on ‘satisficing’
(meeting an aspiration level under constraints). People seek ‘good enough’
solutions, and do not necessarily optimise if it allows them to take shortcuts.
This is as a result of search costs that are unknown when we begin.
People intend to be rational, but cannot be so to the extent that they would
like. The limited capacity of decision-makers and processes prevent anything
approaching complete rationality. Economists would argue that this is still
optimisation behaviour, but including the ‘costs of searching’ as an
externality.
Adam Smith recognised that there are goods advantageous to the whole of
society, however that no individual or small group could bear the costs alone.
Public Goods
Public goods are non-rivalrous and non-excludable.
Club goods are non-rivalrous but excludable.
Common goods are rivalrous but non-excludable
Private goods are rivalrous and excludable.
European public goods are an interesting case of balancing these - the dissolution of
national boundaries may reduce transaction and production costs (e.g. environment). But
public goods and bads can be perceived differently across countries or communities.
Hardin’s ‘tragedy of the commons’ is a basic text in this field. The short-run rational
maximiser would seek an immediate pay-off from using the common good, despite the
long-run costs to his community.
