LESSEN HERBEKEKEN
LES 1:
INTERNATIONAL ECONOMICS: A GLOBAL PUBLIC GOODS APPROACH
BOP: format for a particular country with which you can observe and measure cross-
border movements (finance, trade, …).
GLOBAL PUBLIC GOODS:
Public goods:
Goods of services have 2 characteristics
o Non-exclusion
Once the good is produced you can’t be excluded from
consuming/enjoying the good/service
Even if you are not willing to pay for it
o Non-rivalry in consumption
This means that even if I consume the good that does not
influence/change your ability to also consume the good
o Example pure public good: clean air, lightning for the streets
Desirable goods and services that cannot be efficiently produced by the
market mechanism
o The market mechanism can only be used to make sure that we have a
supply of these desirable things in a sufficient way
o This is because free riding
Opposite: private goods
Goods and services that are produced by the market, by private markets
Market based goods
Typically, a good for which there is exclusion possible
o You’re only allowed to consume the good if you buy it, if you’re
prepared to pay for it
Typically produced by the market system, I buy it, I consume it, it’s gone, no
one else can consume it
1
,Quasi-public goods or joint products:
They have only one of the 2 characteristics, but not the other one
o Territories on the world that are not part of a country (common pool
problems), they can be used by everyone (non-exclusion), but if
everyone has access to them, everyone is going to use them and then
you will have complete deplusion
o NATO, easy to excluse because you need to become a member, but
once you are a member than you have features of non-rivalry
Joint product (little bit of public good & private good)
o Education, public transportation, etc.
Free rider behavior:
You cannot be forced to pay for things while using public goods
Private actors will not be interested in making these goods because they can’t
force you to pay for it
o So, several goods and services will be under provided if you solely rely
on the market mechanism, because of the specific features of public
goods
You need other actors to step in, to provide these desirable goods and
services and so you come to the public sector
o The public sector steps in to make sure that these desirable services
are supplied in a sufficient matter
A public actor has its way to force people to contribute to the financing of the
desirable services through the public sector
o funds collected from taxes
We can rely on institution, on rules, agreement of a public nature to step in
and overcome that market failure
Application to global context:
Global public goods (GPGs)
Some market failures cannot only be cured at the national levels because of a
number of the problems have cross-border dimensions
o For example: pollution (clean air)
This has a global nature, pollution is not stopping at the border of
the next country
Some of these desirable goods and services that are under produced can best
be tackled by the same reason as with free riding (states that are freeriding)
o To solve that kind of failure you need interventions at a supranational
level
o Install institutions at an international level
2
,Different technologies of provision:
Technology of provision is the way of how individual contributions translate in
the global total supply
The technology will determine what kind of intervention mechanism will be
most effective and efficient
1: Summation
o The total supply is the sum of all the individual contributions
o Pollution is produced by summation
o What you do, your effort matters in reducing pollution
o Determined by the sum of our individual effort
o Everyone is important, everyone matters
o Policy consequence
What would you advice as a global institution?
Everyone has to contribute, because everyone is important, we
do this together
o But there are particular global goods that are produced by different
types of technologies, such as the weakest link
2: Weakest link
o The total effect is determined by the contribution of the weakest, the
one who is contribution the least
o Example of the island surrounded by the sea
o Global financial stability (the protection of a global financial crisis) has a
lot of features of this weakest link
We have one global financial market, the level of protection of
the world against a global crisis is the country with the highest
probability of a financial crisis, because if it happens in one
country while there is a global financial institute, it will spill over
to other countries
3: Best shot
o The opposite of the weakest link
o The total gain will be determined by the one who is making the biggest
effort
o Example: the development of new drugs, vaccines for instance
Some have much better track records, scientists, etc., so they
have much better chance of making a vaccine
o The policy consequences:
You can’t give everyone money, because you have a different
success rate so it’s better to give the money to the one who has
the highest chance of being successful
3
, The concept of the Balance of Payments
BoP:
An accounting record of all actions between residents of a country vis a vis the
rest of the world
Deals only with cross national transactions
Typically you measure it over a period of 1 year
Constructed of a number of big parts (traditionally 2 big parts) and together
they make up to the BoP and in accounting terms they sum up to 0:
o Current account
o Capital account
4
LES 1:
INTERNATIONAL ECONOMICS: A GLOBAL PUBLIC GOODS APPROACH
BOP: format for a particular country with which you can observe and measure cross-
border movements (finance, trade, …).
GLOBAL PUBLIC GOODS:
Public goods:
Goods of services have 2 characteristics
o Non-exclusion
Once the good is produced you can’t be excluded from
consuming/enjoying the good/service
Even if you are not willing to pay for it
o Non-rivalry in consumption
This means that even if I consume the good that does not
influence/change your ability to also consume the good
o Example pure public good: clean air, lightning for the streets
Desirable goods and services that cannot be efficiently produced by the
market mechanism
o The market mechanism can only be used to make sure that we have a
supply of these desirable things in a sufficient way
o This is because free riding
Opposite: private goods
Goods and services that are produced by the market, by private markets
Market based goods
Typically, a good for which there is exclusion possible
o You’re only allowed to consume the good if you buy it, if you’re
prepared to pay for it
Typically produced by the market system, I buy it, I consume it, it’s gone, no
one else can consume it
1
,Quasi-public goods or joint products:
They have only one of the 2 characteristics, but not the other one
o Territories on the world that are not part of a country (common pool
problems), they can be used by everyone (non-exclusion), but if
everyone has access to them, everyone is going to use them and then
you will have complete deplusion
o NATO, easy to excluse because you need to become a member, but
once you are a member than you have features of non-rivalry
Joint product (little bit of public good & private good)
o Education, public transportation, etc.
Free rider behavior:
You cannot be forced to pay for things while using public goods
Private actors will not be interested in making these goods because they can’t
force you to pay for it
o So, several goods and services will be under provided if you solely rely
on the market mechanism, because of the specific features of public
goods
You need other actors to step in, to provide these desirable goods and
services and so you come to the public sector
o The public sector steps in to make sure that these desirable services
are supplied in a sufficient matter
A public actor has its way to force people to contribute to the financing of the
desirable services through the public sector
o funds collected from taxes
We can rely on institution, on rules, agreement of a public nature to step in
and overcome that market failure
Application to global context:
Global public goods (GPGs)
Some market failures cannot only be cured at the national levels because of a
number of the problems have cross-border dimensions
o For example: pollution (clean air)
This has a global nature, pollution is not stopping at the border of
the next country
Some of these desirable goods and services that are under produced can best
be tackled by the same reason as with free riding (states that are freeriding)
o To solve that kind of failure you need interventions at a supranational
level
o Install institutions at an international level
2
,Different technologies of provision:
Technology of provision is the way of how individual contributions translate in
the global total supply
The technology will determine what kind of intervention mechanism will be
most effective and efficient
1: Summation
o The total supply is the sum of all the individual contributions
o Pollution is produced by summation
o What you do, your effort matters in reducing pollution
o Determined by the sum of our individual effort
o Everyone is important, everyone matters
o Policy consequence
What would you advice as a global institution?
Everyone has to contribute, because everyone is important, we
do this together
o But there are particular global goods that are produced by different
types of technologies, such as the weakest link
2: Weakest link
o The total effect is determined by the contribution of the weakest, the
one who is contribution the least
o Example of the island surrounded by the sea
o Global financial stability (the protection of a global financial crisis) has a
lot of features of this weakest link
We have one global financial market, the level of protection of
the world against a global crisis is the country with the highest
probability of a financial crisis, because if it happens in one
country while there is a global financial institute, it will spill over
to other countries
3: Best shot
o The opposite of the weakest link
o The total gain will be determined by the one who is making the biggest
effort
o Example: the development of new drugs, vaccines for instance
Some have much better track records, scientists, etc., so they
have much better chance of making a vaccine
o The policy consequences:
You can’t give everyone money, because you have a different
success rate so it’s better to give the money to the one who has
the highest chance of being successful
3
, The concept of the Balance of Payments
BoP:
An accounting record of all actions between residents of a country vis a vis the
rest of the world
Deals only with cross national transactions
Typically you measure it over a period of 1 year
Constructed of a number of big parts (traditionally 2 big parts) and together
they make up to the BoP and in accounting terms they sum up to 0:
o Current account
o Capital account
4
