Do public goods and services such as streets, parks and dams have to be provided by government? Is the concept of privately provided collective goods a viable alternative? Many economists as well as much of the public think that only the government or public sector can provide the collective services that people in a community may desire.
This book argues that this proposition is incorrect in that the market-failure model does not reflect the nature of real society. Once real-world factors are introduced into public-goods theory, the market-failure argument not only falls, but is turned upside down. Additionally, the provision of public goods by the public sector is itself subject to government failure. This is because actors in this process seek to maximise their own benefit at the expense of the public. Hence, the book questions the application of public-choice theory.
The book defines ‘public’ and ‘private’ before moving onto issues including the ‘free-rider’ problem, issues concerning the nature of collective goods (both territorial and non-territorial), rentals, transaction costs and the concept of consensual as opposed to imposed governance models. The nature of proprietary communities is considered before the book moves onto a series of US- based case studies to illustrate this argument.
The market system provides a mechanism for the provision of public goods that is less corruptible and more responsive than public provision. The main findings include:
- Territorial public goods generate rents and, if an organisation has ownership rights to the sites on which the rents arise, the rents reveal the demand for the goods and provide a means to pay for them
- Five major case studies demonstrate that private agents can be induced to provide public goods – it is demonstrated that private communities are providing public goods abundantly
- In this setting institutional factors determine the specific provision of public goods
- The hypothesis of market-failure can be rejected in general for excludable goods, and also does not necessarily hold for non-excludable goods.
The policy implications that can be drawn from these findings include:
- The existence of empirical examples in which whole communities of various sorts use private provision of public services implies that statements about public goods, such as that the decentralised price system cannot be used or that market mechanisms will not provide them ‘optimally’, are not universally true and, in particular, not valid for terrestrial public goods
- Private governance has created many proprietary communities around the world, which are creating environments in which people bid rents that finance the community services. Theory needs to acknowledge this so that alternative forms of governance and provision of services are not overlooked prematurely
- Consensual communities eliminate the false alternatives of governance and markets in the provision of public goods
- Private communities unite governance with market competition in the provision of public goods.
