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  • Print publication year: 2009
  • Online publication date: June 2012



Chapter 1 showed how competitive markets achieve efficiency for private goods – or goods that benefit one person. We also noted that for public goods, which can benefit many people simultaneously, we do not expect markets to result in efficient supply of public goods because people can benefit when others pay. In chapter 1, we also encountered an example of a public good in the rule of law. In this chapter, we investigate public goods in detail.

Because many people benefit simultaneously, public goods could well be called collective goods. The collective benefit suggests a need for collective decisions. Public goods thereby provide a foundation for a “theory of the state,” through the need for institutions of government that allow collective decisions to be made.

The need for government is, however, subject to the characteristics of institutions: we saw in chapter 2 that political and bureaucratic principal–agent problems impose limitations on delegating responsibilities to governments.

In this chapter, we shall for the most part set aside the limitations of political and bureaucratic principal–agent problems. We shall ask normative questions about the desirable role of government as if political decision makers and bureaucrats could always be assured to be the faithful agents of taxpayers and voters. The questions that we ask are, therefore, about what political and bureaucratic decision makers who faithfully seek the public interest should do – or can do – to ensure availability of public goods.

Literature notes
Types of public goods
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Information and public goods
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Cost-benefit analysis
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Group size and voluntary public-good contributions
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The previously listed papers are reprinted in:
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Property taxes and incentives for zoning
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Other approaches to private payment for public goods
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An efficient economy with public and private goods
Samuelson, P. A., 1955. Diagrammatic exposition of a pure theory of public expenditure. Review of Economics and Statistics 37:350–6.