National Defense or Pizza

“The tolls for the maintenance of a high road cannot with any safety be made the property of private persons. A high road, though entirely neglected, does not become altogether impassable, though a canal does. The proprietors of the tolls upon a high road, therefore, might neglect altogether the repair of the road, and yet continue to levy very nearly the same tolls. It is proper, therefore, that the tolls for the maintenance of such a work should be put under the management of commissioners or trustees.”
- Adam Smith

A useful paper for teaching public goods-Why Public Goods are a Pedagogical Bad by Frances Woolley. Some excerpts from the paper;

"If we designed our public economics courses with the aim of explaining government spending, they would look quite different. They might start, as does Barr (1987), with discussions of risk, uncertainty, and insurance, and the reasons why private insurance markets fail - moral hazard and adverse selection. Alternatively, one could take a public choice approach, beginning with the premise that politicians and voters are rational, self-interested agents, and explaining government expenditures as the result of politicians and voters interactions. Or one could begin with the political philosophy of income redistribution. Any of these starting points would explain a greater portion of government spending than the public goods paradigm.

Likewise, substantial insights into the economics of non-rival goods can be gained from the analysis of clubs (for providing local goods that are non-rival but excludable), the theory of natural monopoly (for goods such as Microsoft office where there are substantial initial development costs but the additional cost of an extra Word user is (close to) zero), or the economics of information (for the development of new technologies or drugs, where the manufacture of the new drug may cost a dollar or two per user, making it close to non-rival but the drug development may cost millions). While it is interesting and useful to have a theory for the special sub-set of non-rival goods that happen to be non-excludable also, there too few such goods to justify the place such goods hold in the public economics curriculum.

We are unlikely to be able to teach our students how to achieve peace, social justice, and environmental sustainability. What we can do, however, is set them along the right path. Much government intervention in the economy takes the form of income redistribution or social insurance. Students need to understand the economic rationale for each. Markets can fail when goods are non-rival or non-excludable, and this creates a possible niche for government. But governments have to be understood as agents with their own interests, sometimes selfish ones. And governments, like anyone else, need to overcome information problems and free-riding tendencies in order to succeed where the market fails.

It is easy to add demand curves vertically to find the efficient level of public goods provision. Understanding the real world is more complex and difficult – but ultimately much more fun."

Via Andrew Leigh

Related;
Toilet Cleaning and Department Chairing: Volunteering a Public service
by Marc Bilodeau and Al Slivinski

“The Lighthouse in Economics”- a summary of the Coase paper

Short Takes- David Warsh

Global Public Goods