Public Goods Provision Institutions

Abstract

Demand for public goods can be assumed to originate from the individuals’ utility maximization calculus. Their opportunity sets however depend on the institutional structures within which they live. For example, taxation, subsidization, rationing, redistribution, and public provision of many goods by a government affect individuals’ private choice sets and therefore the demands expressed directly to suppliers of public goods(market demands).Collective institutions for the provision of public goods also create new opportunities for trying to influence the quantities providedby others.For example if a government buys public goods with tax revenue, individuals can express political demands about the level of taxes they prefer for everyone, and what composition of public goods they want the government to provide. Besides a private budget set, individuals then have a political choice set whose shape and dimension depends on the power collective institutions have, and from whichpolitical demands can be derived. The paper takes an abstract look at how different institutions concerned with public goods provision (taxation and government provision, tax-earmarking, general fund, subsidies to private provision) affect individuals’ private and political choice sets, and their market and political demands with regards to both the level and composition of public goods.

Prepared for the Villa Colombella Seminar on the Demand for Public Output, Montreal, September 5-8, 1990. Parts of this paper have been drawn from my doctoral thesis. I wish to thank professors Alan Slivinski, Jim Davies, Ronald Wintrobe and Anthony Scott for their comments and suggestions. Any remaining mistakes are my entire responsibility.