Randall G. Holcombe Public good, as defined by economic theory, is a good that, once produced, can be consumed by an additional consumer at no addi- tional cost. A second characteristic is sometimes added, specifying that consumers cannot be excluded from consuming the public good once it is produced. Goods with these characteristics will be underpro- duced in the private sector, or may not be produced at all, following the conven- tional wisdom, so economic efficiency requires that the government force people to contribute to the production of public goods, and then allow all citizens to consume them. Simple observation of the real world suggests two problems with the application of public goods theory as a justification for government produc- tion. First, many public goods are successfully produced in the private sector, so government production is not necessar3~ Second, many of the goods government actually does produce do not correspond to the economist's definition of public goods, so the theory does a poor job of explaining the government's actual role in the economy. If public goods theory fails as a theory of public expenditure, why is it so firmly entrenched in the economic theory of the public sector? This
The Review of Austrian Economics – Springer Journals
Published: Nov 26, 2006
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