Budgetgames and the private and social demand for mixed public goods

We have indicated how budgetgames played by a representative sample of voters can be used to estimate the marginal social demand for mixed public goods. A model has been developed that enables us to distinguish between private and social demand considerations of the players. Information on marginal social demand is obtained by comparing the actual outcome of the game with a simulated game solution based on the optimization of private benefits only. This optimization problem is shown to be approximately equivalent to a linear programming problem in which each respondent minimizes the loss of subsidies on his consumption of the mixed public goods considered. Empirical results show the largest marginal social demand for public services for the elderly, followed by mental health care, primary and secondary education and higher education. A negative marginal social demand is expressed for in-patient health care, police and justice, outpatient health care and culture and recreation, the latter service having the smallest social demand. An unexpected result is the relatively large marginal social demand for higher education. Although this service is severly cut in the actual game, this outcome mainly derives from small private benefits to the average voter. Therefore, the usual interpretation of budgetgames — that identifies heavy budget cuts with small social demand — underestimates the social demand for higher education. The reverse is true for general in-patient health care. Although this service is moderately cut in the actual game, this result mainly derives from the large private benefits to the average voter. In this case the usual interpretation of the game overestimates social demand. We have also studied the dependence of the marginal social demand pattern on the political orientation of the voters. Apart from typical pure or almost pure public goods such as defence, general government and police and justice services — clearly favoured by right-wing voters — we find no strong dependence on political orientation. We think the presented approach is a step towards the measurement of social demand for mixed public goods using stated voter preferences in a well-defined budgetgame framework. Such a direct approach seems to be a useful complement to the indirect revealed preferences approach, which faces large theoretical and empirical problems due to the required complex models of collective decisionmaking. We also have shown the importance of the explicit incorporation of private benefit considerations in the interpretation of budgetgames. The latter are indispensable when correct conclusions on the social demand for mixed public goods are to be drawn from such games. Future research should include the study of possible biases introduced by different designs of budgetgames, as well as more refined procedures for the estimation of private and social demand for public goods from budgetgame solutions. Copyright Martinus Nijhoff Publishers 1987