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Public goods: From market efficiency to democratic effectiveness Introduction This contribution examines the concept of public goods, responding to calls to rethink public goods given a changed context (Desai, 2003: 73) and widening global scope (Kaul et al, 2003; Kaul, 2006). The first section explores public goods as a concept framed in terms of economic ‘efficiency’ and ‘market failure’. The next section notes a transition from market-failure to state-failure theory, leaving public goods at an impasse. The discussion compares differing perspectives and assumptions about the role and character of individual and collective action, public service and government. It examines the contention that ‘efficient markets may not do’ (Bator, 1958; Bozeman, 2002), contrasting mainstream economics concerns with ‘market failure’ with alternative ideas of ‘public-value failure’ (Bozeman, 2002; Haglund, 2010) and ‘obnoxious markets’ (Kanbur, 2001). The following section identifies alternative economic traditions and looks to a new conceptualisation of public goods. Adapting global public goods theory, a ‘new public goods’ approach represents a departure from conventional economics. It supplements the ideas of an alternative, or ‘other’, economic canon with democratic concerns and questions of ‘public value’. The conclusion considers proposals for public goods based on this new approach and some policy implications that might follow. Public goods and market failure Samuelson’s ‘pure theory of public expenditure’ (1954) is the conventional starting point for defining a special economic category - ‘collective’ or public goods, distinct from ‘private goods’. Public goods require public expenditure as they are subject to ‘market failure’. They are characterised by ‘non-rivalry’ and ‘non-excludability’. Nonrivalry means that the consumption of the good by one person does not reduce the quantity available for consumption by another person (Samuelson, 1954: 387), while non-excludability means that no person can be excluded from the benefits or effects of that good, or at least not without great difficulty and cost. The theoretical debates about public goods focus on three main issues: i) preference revelation – knowing what goods the public wants and their willingness to pay for them; ii) political bargaining – deciding which goods, how much to provide and who are entitled to them; and iii) production of these goods by governmental or private agents (Desai, 2003: 64). Public goods present a ‘market failure’ problem because rational, utility-maximising individuals are not expected to reveal their ‘true preferences’ for a public good. Instead, they will ‘free ride’, leaving public goods under-priced, under-provided and over-consumed. Even a theoretically ‘perfect’ free market would fail to be the ‘best’, i.e. most efficient, mechanism for allocating goods, maximising welfare and creating just outcomes. The implication was that all three issues would have to be solved by state action – determining preferences, resolving political bargaining and providing public goods. Public goods were distinguished from private goods, but they were treated in an analogous way to them (Desai, 2003: 64). Public goods theory did not reflect ‘the public value of public things’, but internalised assumptions about private goods as the conceptual norm and reflected the private value of public things (Bozeman, 2002: 146). Such assumptions reflected the 18th-century tradition of economic thought advocating ‘efficient’ markets as the answer to government failure. Government intervention was seen as undesirable and only legitimate in cases where the market proved inefficient in allocating resources according to the principle of ‘Pareto optimality’ (only allowing one individual to ‘gain’ as long as no other individual ‘loses’). In general, public goods theory did not Commonwealth Governance Handbook 2013/14 97 Su-ming Khoo Shared space, finite resources (pictured: Malé, Maldives) Commonwealth Secretariat/Victoria Holdsworth


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