Friday, May 13, 2005

Privately Provided Public Goods

Economists generally teach that it is difficult for voluntary individual behavior to be successful in the provision of public goods. Perhaps such difficulties can be overcome with technological change. Consider this suggestion of assurance contracts. Be sure to check on the link to

Mancur Olson has discussed the ability of organizations to provide themselves with public goods, and he has developed the implications of the difficulties in doing so in terms of the success of economies over time. I've mentioned Olson's work here and here. The idea is that for a group to be successful in providing itself with public goods, the group has to be able to either exert coercion and/or offer selective incentives to individual members of the group. So, it is expected to be difficult for large groups to successfully organize, but once organized large groups tend to persist. Among the implications are that over time a system of political economy can become sclerotic in the sense that an increasing number of groups within the system devote ever more money and resources to distributive activities at the expense of productive activities. As Olson explains in his book Power and Prosperity even economies that are as successful as we think ours is will fall short of the economy's potential, sometimes far short.

Question: If assurance contracts are practical and it becomes easier for groups to provide themselves with public goods, how will this effect the implications that are drawn from Olson's theories of groups and economies?

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