How Should A Public Good Be Provided? A Transaction Cost Approach
AbstractThis paper investigates how the trade-off between organization costs, transaction costs and economies of specialization may affect the way public goods are provided. In doing so, it considers two ways of providing a public good. One is collective provision where users organize themselves to jointly finance the public good which is produced by a specialized firm. The other is market provision with bundling where a firm produces the public good and a private good and sells them as a bundle. Both methods of public goods provision deal with the problem of non-excludability. The first method involves organization costs, but can take advantage of specialization economies; the second method avoids organization costs, but may incur some transaction costs and forgoes the benefit of specialization economies. Which method is superior depends on the relative magnitudes of organization costs, transaction costs, specialization economies as well as other features of the economy such as population size.
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Bibliographic InfoPaper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 09/06.
Length: 10 pages
Date of creation: 02 May 2006
Date of revision:
Contact details of provider:
Postal: Department of Economics, Monash University, Victoria 3800, Australia
Web page: http://www.buseco.monash.edu.au/eco/
More information through EDIRC
Other versions of this item:
- Wenli Cheng & Dingsheng Zhang, 2011. "How Should A Public Good Be Provided? A Transaction Cost Approach," Division of Labor & Transaction Costs (DLTC), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 69-80.
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-17 (All new papers)
- NEP-ORE-2009-07-17 (Operations Research)
- NEP-PBE-2009-07-17 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Auerbach, Alan J., 1985.
"The theory of excess burden and optimal taxation,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127
- Coase, R H, 1974. "The Lighthouse in Economics," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 357-76, October.
- Holcombe, Randall G, 1997. " A Theory of the Theory of Public Goods," The Review of Austrian Economics, Springer, vol. 10(1), pages 1-22.
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