Public vs. Private Provision of Information

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Public vs. Private Provision of Information

• Yale Braunstein
• March 2008

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Outline

• Origins of the state
• Reasons states invest in infrastructure
• User fees for state-provided goods services
• Public goods, economic efficiency, etc.

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Origins of the state

• Divine ordinance (the king carries out Gods
  will)
• Naked power (ability to seize and hold power)
• Instinctual-biological (people desire to form
  communities)
• Voluntary contract (social contract a la Locke,
  Hobbes, Rousseau)

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Reasons states invest in infrastructure

• Infant industry arguments (go back at least to
  John Stuart Mill)
• RD is risky (state is more able to bear risk
  than private entities)
• Diffuse benefits beneficiaries
• Foreign trade/competitive advantage
• Military/national defense
• Expanded to included Interstate highway system
  (Autobahnen)
• Role of OMB Circular A-76

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A-76 Government Make or Buy

• Policy The longstanding policy of the federal
  government has been to rely on the private sector
  for needed commercial services. To ensure that
  the American people receive maximum value for
  their tax dollars, commercial activities should
  be subject to the forces of competition.

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User fees

• Only 3 basic ways to deal with excess demand
• Make more
• Ration
• Set prices
• Authority from OMB Circular A-25 A-76
• But these have problems in the real world
• Especially for information products services (?)

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A-25 User Charges

• General policy A user charge, as described
  below, will be assessed against each identifiable
  recipient for special benefits derived from
  Federal activities beyond those received by the
  general public. When the imposition of user
  charges is prohibited or restricted by existing
  law, agencies will review activities periodically
  and recommend legislative changes when
  appropriate.

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Public goods, economic efficiency, etc.

• Externalities
• Markets market failures
• Public goods

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Externalities

• Formal definition Consumption or production of
  good A changes costs or benefits associated with
  good B
• 2x2 classification scheme cons vs. pdn, positive
  vs. negative
• Specific examples
• Bees honey
• Jewelry production
• Possible solution Impose excise tax or effluent
  charge (or use subsidy)

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Other solutions to externalities

• Taxes subsidies
• Internalize the externality via merger,
  regulation, etc.
• Define property rights and allow bargaining
  negotiation
• Coases Theorem (again)

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Market Failure

• Alternate definitions
• The condition where the allocation of goods and
  services by a market is not efficient.
• See Bators classic article, "The Anatomy of
  Market Failure," Quar. Jour. Econ. (August 1958).
• More loosely The market did not give the result
  I wanted.

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Causes of market failure

• Monopoly
• Public goods attributes
• Non-exclusivity difficulty in excluding
  non-payers
• Non-rivalry low (or zero) marginal cost to serve
  an additional user
• Pure examples
• Broadcasting, fire protection, mosquito abatement
• Less-than-pure examples
• Immunization, literacy, public roads, light houses

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Implications for information policy

• Appropriate role of the government in direct
  provision of information
• Appropriate role of the government in direct
  provision of infrastructure
• RD
• Role of government labs
• Role of tax incentives

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