Global Public Goods

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Global Public Goods
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3 week plan

• 1. Global Public Goods Diane, today in week 2
• 2. Application of GPG ideas to global warming
  Ben in week 3
• 3. Student discussion in week 4

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Structure of todays seminar

• Rehearse public goods ideas
• Rivalry and excludability
• Scale up to the global level

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What is a public good?

• While a market may allow individuals with
  self-interest to create and allocate many goods
  optimally, there exists a class of goods that are
  not produced adequately in a market system
  because of its voluntary nature

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Aristotle

• "For that which is common to the greatest number
  has the least care bestowed upon it. Every one
  thinks chiefly of his own, hardly at all of the
  common interest and only when he is himself
  concerned as an individual.

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Knowledge as a public good

• He who receives an idea from me, receives
  instruction himself without lessening mine as he
  who lights his taper at mine, receives light
  without darkening me
• Thomas Jefferson, 3rd US President

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Paul Samuelson

• Collective goods
• ...goods which all enjoy in common in the sense
  that each individual's consumption of such a good
  leads to no subtractions from any other
  individual's consumption of that good...
• Why the light house?

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Why the lighthouse?

• What is public about the service provided by the
  light house?
• What other things are considered a public good at
  the national or local level?

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Why are public goods insufficient in supply?

• Markets fail
• Under supplied due to the non-rival and non
  excludable character of their provision
• Disagreement concerning who should provide and
  finance these public goods as well as through
  what kind of mechanisms

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Exclusion

• A pure public good is one that is
  non-excludable
• No-one can be barred from its consumption.
• Examples?

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Rivalry

• if the good can be consumed without it being
  depleted, then the public good is non-rival in
  its consumption
• One persons consumptions has no effect on the
  amount available for others

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Private Goods

• Private goods are excludable and rivalrous
• ownership transferred against prices
• property rights attached

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Theory and reality

• Pure public goods exist in text books
• Need to consider
• Impurities
• Club goods
• Common pool resources
• Externalities
• Spill-overs

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Impurities

• Pure public goods may be distributed unevenly
• Example
• Impure public goods, like libraries or public
  pools, are provided at particular locations, and
  are more accessible to some than to others.

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Club goods

• Between a pure public and private good
• Optimal size is a group who can share a good
  without diminishing another members consumption
• Non-rivalrous in consumption, but excludable

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Clubs

• Associations that exclude on the basis of a fee,
  nomination or some other method

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Country clubs

• Regional associations
• European Union
• ASEAN

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Common pool resource

• A good which is rival but non-excludable is
  sometimes called a common pool resource
• Tragedy of the commons

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Tragedy of the Commons

• Collective Action problem
• A shared resource in which any given user reaps
  the full benefit of personal use, while losses
  are spread over all users
• Garrett Hardin

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Commons Tragedies

• Classic example cows on a shared pasture
• Tragedy of overgrazing
• A collective social trap
• therein is the tragedy. Each man is locked into
  a system that compels him to increase his herd
  without limit in a world that is limited. Ruin
  is the destination to which all men rush, each
  his own best interest in a society that believes
  freedom of the commons

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• Hardin used this metaphor of the commons to
  describe
• any situation where the interests of the
  individual do not coincide with the interests of
  the community, and where no organization has the
  power to regulate individual behaviour.

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Hardins solutions

• Mutual coercion, mutually agreed upon
• A regulation accepted by a majority and imposed
  upon all involved
• Eg. Speed limits, income tax
• He writes Who enjoys taxes. We all grumble
  about them. But we accept compulsory taxes as we
  recognize that voluntary taxes would favour the
  conscienceless

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Global Commons

• Concept extended to regional global level
• Oceans
• Atmosphere
• Biological diversity

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Accessing the commons

• Many commons are contested Where is the
  boundary? Who has access? How much can a person
  or group harvest or take? How is the resource
  allocated?
• Commons are connected to democracy Who is
  eligible to make the rules? What are the payoffs
  or punishments for following or defying the
  rules?
• Indigenous peoples, in particular, must confront
  issues of the commons in areas without clear
  property rights.

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More Definitions A

• A local public good benefits all the members of a
  local community. Eg?
• A national public good benefits all the citizens
  of a state. Eg?
• A domestic public good benefits all members of a
  community situated in a single state. Eg?

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More Definitions B

• A regional public good benefits countries
  belonging to a geographic area
• A global public good benefits all countries and
  all persons
• An international public good benefits more than
  one country.

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Levels of public good provision

• Public goods provision often seen as a state
  responsibility inside the state
• Public sector provision
• Multi-level governance and supra-nationality
  under-developed provision of GPGs
• Definitions A assume sovereignty
• Definitions B bring complications

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GPG Complications

• Sovereignty
• National concerns, and structure of international
  system, translated into IOs
• its impossible to reconcile the World
  Banks country focus with the delivery of GPGs
  there were too many contradictions. Whose
  interests would take precedence?

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Conceptual work

• Inge Kaul
• Ravi Kanbur
• Tod Sandler
• Joe Stiglitz
• Sectorally specific analytic work

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Global Public Goods

• How do international organizations and non-state
  actors create public goods.
• What kinds of collective action is required?

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What makes a public good global?

• spatial range
• Extend its impact beyond a group of contiguous
  countries

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UNDP Criteria

• Quasi-universal in terms of covering more than
  one group of countries
• Quasi universal in terms of people covering all
  population groups
• Quasi universal in meeting the needs of current
  generations without foreclosing opportunity for
  later generations

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Types of GPGs

• Natural global commons
• Human made global commons
• Global conditions

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Natural Global Commons

• Ozone layer
• Other examples?

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Human made Global Commons

• AIDS vaccine
• Examples?

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Global conditions

• Global policy outcomes
• Eg global trade agreement
• Other examples

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World Bank Definition

• commodities, resources, services and also system
  of rules or policy regimes with substantial cross
  border externalities

• that are important for development and poverty
  reduction, and that can be produced in sufficient
  supply only through co-operation and collective
  action by developed and developing countries

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UN Advocacy

• Global public goods are often ignored but
  enormously important aspect of multilateralism.
  Whether we are talking about preserving
  bio-diversity, preventing climate change,
  fighting the spread of communicable diseases,
  establishing rules for trade and aviation, or
  setting global standards of human rights, it is
  impossible for any single state to secure such
  goods on its own

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Global Public Bads
Global Public Bads

• Pollution

• Pollution
• War
• Illiteracy
• Internet crime and fraud
• Global financial instability
• Disease

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Externalities and spill-overs

• By-products of third party action
• Positive externalities
• Education can have health benefits
• Negative externalities
• civil conflict

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Do we need to care about global public bads?
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Other public health bads

• Invasive species
• Mad cow disease
• Bio-terrorism
• Obesity epidemic
• Ocean fish stock collapse
• Smoking and drug abuse
• What is global about these bads?

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Why do we produce bads?

• Economic explanations of rationality and
  imperfect information dominate
• Sovereignty
• Differing preferences and priorities
• The free rider problem
• The weakest link problem
• The summation problem
• Prisoners dilemma

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1. Sovereignty

• Most peoples lives are grounded in local and
  national context...
• Governments unwilling to constrain sovereign
  decision-making

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International cooperation

• States reluctant to accept biding rules or
  international monitoring of their compliance
• Weakens cooperation by adding high levels of
  uncertainty to international agreements

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IEG Annual Report, 2008

• Shared Global Challenges
• Banks experience fostering global public goods
  including climate protection and control of
  communicable diseases.
• a big problem with the Bank getting involved
  in GPGs was its fundamental country focus, and
  all the incentives that went with that.

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Responsible Sovereignty

• A Global Responsibility Partnership aimed at
  equitable and fair access to global public goods.
  
• A Global Responsibility Partnership that
  contributes to crisis prevention, conflict
  management and post-conflict reconstruction.
• And a Global Responsibility Partnership that is
  more inclusive and fills regulatory and
  institutional gaps in the international system.
• FRANK-WALTER STEINMEIER, Foreign Minister of
  Germany, July 15, 2008
• Available athttp//www.auswaertiges-amt.de/diplo
  /en/Infoservice/Presse/Rede/2008/080715-Rede-BM-Gl
  obal-Insecurity.html

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2. Preferences

• Governments have different short term interests
• Environment versus Health
• Girls education versus clean water
• Disputes over mechanisms and financing of GPGs
• What is the good in public good?
• How do we prioritize global public goods?

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3. Free Riders

• Individuals who take goods free of charge and
  off-load costs onto the community
• rational to avoid cost
• students can be free riders as they do not pay
  full economic cost

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Global Free Riders

• Why should a government or company pay for
  education or peace if other countries, companies
  take advantage without contributing to the cost?
• Because of non-excludability it is rational to
  wait for other countries to take the initiative
• Policy failure
• Over-producing global public bads
• Under producing or mis-utilising global public
  goods

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• Free rider explanation of government failure
• Prisoners dilemma an explanation of market
  failure

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4. Prisoners dilemma

• 2 strategies cooperate or defect
• Both players prefer the outcome of cooperating to
  defection
• If one cooperates, the other gains from defecting
• Individual rationality

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Two prisoners are questioned separately about a
crime they committed. Each may give evidence
against the other or may say nothing. If both say
nothing, they get a minor reprimand and go free
because of lack of evidence. If one gives
evidence and the other says nothing, the first
goes free and the second is severely punished. If
both give evidence, both are severely punished.
The overall (globally) best strategy is for both
to say nothing. However not knowing (or trusting)
what the other will do, each prisoner's (locally)
best strategy is to give evidence, which is the
worst possible outcome.
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Nations as prisoners

• The calculation is simple any given country can
  either cooperate, which means implementing
  painful policies, or do nothing. If everybody
  cooperates, long term costs and crises can be
  avoided at the cost of those painful policies
  in each country. If a country cooperates while
  its peers do nothing, that's the worst-case
  scenario the crisis happens anyway, along with
  extra domestic pain.

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5. Weakest link problem

• GPGs can only be produced when every government
  fully complies with a common approach (eg.
  Containing an infectious disease)
• Success can be eroded by a single act of
  non-compliance
• Examples?

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6. The summation problem

• GPG production dependent on the sum of individual
  efforts
• Eg. Mitigating climate change
• Challenges of long term global initiatives
• ensuring compliance
• Sustaining momentum

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The provision of global public goods is voluntary
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Under supply of GPGs

• Collective action problem more pronounced at
  global level
• Problems of coordination
• . and consensus
• How do we effect collective action?
• Who or what should coordinate?
• Who should finance?

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The Policy Problem

• The big issue, as usual, was not Why but What and
  How
• ODI Simon Maxwell
• www.odi.org.uk

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Financing GPGs

• Cross-border spillovers can create a financing
  gap
• To shore up GPG financing, part of Official
  Development Assistance (ODA) is committed to GPGs
  
• In key areas, rich nations finance provision of
  GPGs
• E.g. Global Fund to Fight Aids, TB,
• Malaria and Global Environment Fund

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Institutions delivering GPGs

• Nation-states
• The United Nations
• Multilateral development agencies, including the
  World Bank
• Regional Institutions
• Networks and private regimes
• Private actors

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International cooperation

• State-centric policy making and GPG deficit
  necessitate international cooperation
• Cooperation can be in the form of international
  laws, agreements, and protocols
• Cooperation can be difficult to obtain and its
  objectives even harder to implement.

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Private delivery of GPGs

• Global compact/corporate citizenship
• should IOs aim to supply GPGs, or rather foster
  networks that provided GPGs?
• global public-private partnerships.

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UN Quote

• Whether we are talking about (1) preserving
  bio-diversity, preventing climate change, (2)
  fighting the spread of communicable diseases, (3)
  establishing rules for trade and aviation, or (4)
  setting global standards of human rights, it is
  impossible for any single state to secure such
  goods on its own

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Themes

• preserving bio-diversity,
• fighting the spread of communicable diseases,
• establishing rules for trade and aviation,
• setting global standards of human rights

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Questions

• What are the public bad dimensions associated
  with each issue?
• How did they come about?
• How do we effect collective action?
• Who, or what, should coordinate?
• Who should finance?
• What institutions need to be created or reformed?
• What priority should each issue have on the
  global governance agenda?

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Next steps

• Ben in week 3 with an application of GPG
  framework to climate warming
• Week 4 discussions
• Conclude today with a couple of points on
  cooperation

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Global Cooperation

• Countries, firms, groups, individuals would
  achieve a better outcome if they cooperated on
  GPGs
• Achieving cooperation
• Repetition
• Rewards and penalties
• Leadership
• Multilateral initiatives
• Public sector intervention to increase level of
  provision

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Mechanisms

• Encourage private action with targeted funds
• Philanthropy in health
• Mechanisms to change behaviour
• Standards setting
• Eg. Basle II
• Aid to overcome constraint of those providing
  least effort
• Subsidize animal disease control in poor
  countries

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How do we get around open access prisoners
dilemma?

• Define property rights for the resource
• Create enforceable contracts
• Informal institutional arrangements
• Influence participants behaviour
• Incentives and penalties
• Facilitating repeated game situation
• promote learning and trust
• Reduce the size of the game through
  decentralization
• Increasing transparency -- defections are made
  public

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Design of institutions

• Kaul et al. (1999, p. 450) conclude with these
  policy recommendations
• creation of international laws which address the
  global nature of public goods
• promotion of participation of civil society at
  the global level and
• giving people and governments the necessary
  incentives to take action for the provision of
  global public goods.

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Rational choice seminar

• Social and Political Thought seminar series of
  Warwick's Social Theory Centre
• Ed Tiryakian (Duke University).
• The Coming Demise of Rational Choice Theory.
• A new perspective for social agency, rethinking
  "altruism" in the context of globalization. 
• Monday, 13 October 2008, 5.30 pm in R3.25.