The Public Commodities Problem

Jerome Levy Economics Institute Working Paper No. 299

12 Pages Posted: 22 Jun 2000

See all articles by Karl Widerquist

Karl Widerquist

Bard College - The Levy Economics Institute

Date Written: March 2000

Abstract

One person's public good is another's public bad and so, perhaps, the public goods problem could be more generally described as the public commodities problem, in which disagreement about the basic goal of a spending program complicates the decision of how much to spend to achieve that goal. Although public goods spending is a continuous variable, it often has a binary goal such as win a war, deter crime, provide transportation, or reduce poverty. To decide how much spending is necessary, society must answer both a normative and a positive question: Normatively, should the government adopt the goal of this spending program? Positively, given this spending program's goal, what is the optimal level of spending? If the answer to the first question is yes, it may be desirable that the actual level of spending be set at the level that would be optimal given that goal, but spending may not be set at that level. This paper uses the median voter theorem to demonstrate that those who do not believe the government should pursue the goal and those who believe that the government can achieve the goal with relatively less spending can form a coalition to keep spending at a level below which most supporters (and possibly most citizens) believe is objectively the optimal amount of spending. Thus, even if voters have rational expectations about the amount necessary to achieve a goal, disagreement about whether or not to pursue the goal can cause underfunding bias.

JEL Classification: H10

Suggested Citation

Widerquist, Karl, The Public Commodities Problem (March 2000). Jerome Levy Economics Institute Working Paper No. 299. Available at SSRN: https://ssrn.com/abstract=228892 or http://dx.doi.org/10.2139/ssrn.228892

Karl Widerquist (Contact Author)

Bard College - The Levy Economics Institute ( email )

Blithewood
Annandale-on-Hudson, NY 12504
United States
845-758-7700 (Phone)
845-758-1149 (Fax)

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