Down With Public Goods
By Bryan Caplan
Every economic educator should immediately read Frances Woolley‘s working paper, “Why Public Goods are a Pedagogical Bad.” The conflict between the official definition of “public goods” and the actual use of the phrase has long troubled me. But Woolley explains the trouble far better than I ever have.
First big problem: The concept of “public goods” is pedagogically confusing.
The public goods discussion violates the first basic pedagogical principle: explain one thing at a time. Confounding rivalry and excludability, it attempts to teach these two analytically, empirically and economically different concepts together. The problem of public finance and the problem of the definition of property rights are confounded into one lecture, one chapter, what seems to be one idea. Moreover, to the extent that the pure public goods discussion ignores goods that are rival but non-excludable, or goods that are non-rival but excludable, the implications of rivalry or excludability are not fully discussed. Hence the second pedagogical principle, begin with basic concepts and work upwards, is violated.
Second big problem: The concept of “public goods” is usually misapplied.
The concept of excludability, as defined in public goods textbooks, is based on technology, that is, whether or not it is technologically feasible to exclude those who do not pay from using the good. However technological feasibility is a hypothetical construct. For example, the streets of New York are excludable if it is hypothetically possible to require people to pay a toll in order to drive a car in Manhattan. A few years ago, many might have agreed such a charge was infeasible; the successful introduction of the London congestion charge suggests that it is not. Because actual exclusion is so much easier to conceptualize than hypothetical excludability, students and others tend to assume, incorrectly, that goods supplied free of charge by government, such as (in many countries) health care, bridges or education, are public goods. Non-excludability is confounded with public finance.
Most publicly-funded health care treatments (pharmaceuticals, chemotherapy, hip replacements, and so on) in wealthy countries are not “public goods” as economists use the term because it is easy, from a technological point of view, to deny people access to, say, coronary-bypass surgery. Toll-booths can be erected on bridges. For education, too, it is straightforward to deny people access (and, in any event, education is, like health care, rival). Yet the confusion between the theoretical concept of public goods and the notion of public, free provision has a long history in the literature. The classic paper on public goods, Samuelson (1954), is “The pure theory of public expenditure.” It formalized what is now known as public goods theory as a way of explaining public expenditure. The two have been confounded ever since.
Woolley goes on to offer three explanations for this misleading concept’s memetic success.
1. Intellectual lock-in. “Academic publishers wish to appeal to the widest possible audience. As long as there is a perception that the average public economics instructor wants a chapter called ‘public goods,’ textbooks will include such a chapter.”
2. Demagogic equivocation. “To call these [stuff that sounds good] public goods somehow seems to imply that they are ‘good’ as in good, desirable things, and ‘public’ in that there is a role for public involvement.”
3. Economists’ distaste for appeals to equity. “[P]ublic goods theory appears to offer the promise of turning equity arguments into efficiency ones.”
My only serious quarrel with this working paper is that it never discusses, or ever mentions, Social Desirability Bias. But hopefully that will make it into the final draft.
HT: Nathaniel Bechhofer