Tuesday, November 8, 2011

Confusion About Public Goods

"Public good" is a term of art in the political-economy literature referring to goods that are likely to be under-produced by the market because of jointness of supply (no matter how much is consumed by one person, there is just as much available for others to consume) and nonexcludability (it costs too much for a supplier of such a good to exclude from using or consuming it those who do not pay). The phrase is often misused or applied inaccurately by scholars outside of economics. Sometimes, anything that might be good for the public (on someone's valuation) is therefore described as a "public good" (even if it is more cheaply and reliably provided by the market than by the government).

This morning I was astounded to learn that economists too have been guilty of the very same gross misdefinition of "public goods." William Birdsall authored a chapter on "A Study of the Demand for Public Goods" for Richard Musgrave's 1965 book Essays in Fiscal Federalism, in which he offered the following definition: "A public good is any good or service which is de facto provided for or subsidized through government budget finance." On this misdefinition, the results of every bit of successful rent-seeking would be "public goods." Even more surprisingly, according to Peter O. Steiner (Public Expenditure Budgeting, 1969, p. 5, n. 2) Musgrave himself adopted a "similar" definition in his (otherwise) pathbreaking 1959 book, The Theory of Public Finance.

Guess I'm going to have to become more tolerant of the errors of non-economists in using terms of art that even economists can't keep straight.

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