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James M. Buchanan pp 713–737Cite as

Palgrave Macmillan

From Highway to Clubs: Buchanan and the Pricing of Public Goods

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Part of the book series: Remaking Economics: Eminent Post-War Economists ((EPWE))

Abstract

The object of this paper is to retrace the steps that led Buchanan from marginal cost pricing to clubs. We claim that the idea individuals could form clubs to finance public goods can be traced back to his first works on public finance, at the end of the 1940s, and relates to the financing of highways and the pricing of their construction and of their use. Very early in his career Buchanan adopted Knut Wicksell’s proposal to use a marginal cost pricing rule even for public goods. The many criticisms raised against this rule led him to replace it with club pricing.

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Notes

  1. 1.

    Simons had written that “[i]f his book is “the best treatise on the theory of public finance ever written,” one hopes that it may be the last” (1937, p. 716)

  2. 2.

    He wrote: “[t]he sketch has been given to illustrate and explain this concept [neutrality]. And it is this concept which, in my view, Einaudi has in mind” (1934b, p. 455; emphasis added).

  3. 3.

    Samuelson “emphasize[d] this: taxing according to a benefit theory of taxation can not at all solve the computational problem in the decentralized manner possible for the first category of “private” goods to which the ordinary market pricing applies and which do not have the “external effects” basic to the very notion of collective consumption goods” (1954, p. 389). As noted by Maxime Desmarrais-Tremblay, another argument was that marginal cost pricing could not be used for public goods or in the case of decreasing costs because it would to set zero prices (2016, p. 133).

  4. 4.

    The paper appears under the title “Simple Majority Voting and The Theory of Games” in The Calculus of Consent (1962, Chapter 11, pp. 143–164).

  5. 5.

    That was also a point one also finds in “A Note on Public Goods Supply” co-authored with Milton Kafoglis: even if private arrangements could be said to be efficient, there were circumstances in which they would be too costly to organize, in particular, did they write, “when the interactions extend over a large number of persons” (1963, p. 412).

  6. 6.

    Buchanan to Roland McKean, March 15, 1965, BP.

  7. 7.

    Buchanan to Tolley, October 7, 1964, BP.

  8. 8.

    Buchanan to Tolley, October 19, 1964, BP.

  9. 9.

    An externality is separable if the consumption or output of i does not affect the marginal utility or cost of j. Otherwise, it is non-separable.

  10. 10.

    Buchanan to Tolley, October 19, 1964, BP, George Mason University, Library, Special Collections.

  11. 11.

    We refer to this manuscript as one unique document dated from 1964.

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  1. Faculté d’Économie, MRE and Université de Montpellier, Montpellier, France

    Alain Marciano

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  1. Department of Economics, George Mason University, Fairfax, VA, USA

    Richard E. Wagner

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Marciano, A. (2018). From Highway to Clubs: Buchanan and the Pricing of Public Goods. In: Wagner, R. (eds) James M. Buchanan. Remaking Economics: Eminent Post-War Economists. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-03080-3_32

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  • DOI: https://doi.org/10.1007/978-3-030-03080-3_32

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