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Comparing the First-Best and Second-Best Provision of a Club Good: An Example

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  • Ali al-Nowaihi
  • Clive Fraser

Abstract

Excludable and congestible shared goods - club goods (e.g., internet access facilities) - are more prevalent than Samuelsonian public goods. Our example shows that, unlike the usual presumption with pure public goods, the optimal second-best supply of a club good might exceed its first-best level. We argue that this arises because user charges can be levied on club goods the government need not impose distortionary taxes to finance them. Thus, the first and second best in a club economy differ mainly because informational constraints prevent the government achieving the right income distribution in the latter.
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  • Ali al-Nowaihi & Clive Fraser, "undated". "Comparing the First-Best and Second-Best Provision of a Club Good: An Example," Discussion Papers in Public Sector Economics 01/8, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:lpserc:01/8
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    References listed on IDEAS

    as
    1. Ming Chang, 2000. "Rules and Levels in the Provision of Public Goods: The Role of Complementarities between the public Good and Taxed Commodities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(1), pages 83-91, February.
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    3. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185.
    4. Batina, Raymond G., 1990. "On the interpretation of the modified samuelson rule for public goods in static models with heterogeneity," Journal of Public Economics, Elsevier, vol. 42(1), pages 125-133, June.
    5. Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 153-166, March.
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    7. Brito, Dagobert L & Oakland, William H, 1980. "On the Monopolistic Provision of Excludable Public Goods," American Economic Review, American Economic Association, vol. 70(4), pages 691-704, September.
    8. Manzini, Paola & Mariotti, Marco, 2002. "A "Tragedy of the Clubs": Excess Entry in Exclusive Coalitions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 115-136.
    9. Fraser, Clive D., 1996. "On the provision of excludable public goods," Journal of Public Economics, Elsevier, vol. 60(1), pages 111-130, April.
    10. Gaube, Thomas, 2000. "When do distortionary taxes reduce the optimal supply of public goods?," Journal of Public Economics, Elsevier, vol. 76(2), pages 151-180, May.
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    1. al-Nowaihi, Ali & Fraser, Clive D., 2007. "Is the public sector too large in an economy with club goods? A case when consumers differ in both tastes and incomes," Economic Modelling, Elsevier, vol. 24(6), pages 1018-1031, November.
    2. al-Nowaihi, Ali & Fraser, Clive D., 2012. "Does the public sector over-provide club goods? A general result," Economics Letters, Elsevier, vol. 117(2), pages 397-400.

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    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods

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