Toward Optimal Provision of Regional Public Goods in Asia and the Pacific: Conference Highlights by Asian Development Bank

Author:Asian Development Bank [Bank, Asian Development]
Language: eng
Format: epub
Tags: Political Science, Public Policy, Regional Planning, Social Policy
ISBN: 9789292613570
Google: SYaADwAAQBAJ
Publisher: Asian Development Bank
Published: 2018-10-01T17:35:35+00:00

Day 2:

KEYNOTE PRESENTATION: Regional Public Goods and Their Technologies of Aggregation

Todd Sandler

University of Texas, Dallas

The keynote presentation was on aggregation technologies and how they affect the prognosis for efficiency in providing RPGs.

Mr. Sandler noted that public goods have four defining properties. One is non-excludability of benefits, where, once provided, payers and nonpayers get the benefits of these public goods. Two is non-rivalry of benefits that goods’ benefits, when consumed by one agent (or a country), do not detract from the consumption benefit available to others from that same unit of provision. The third property is the aggregation technology that refers to the distribution of contributions for adequate provision. The fourth relates to the range of public good spillovers, which influences how a region is defined.

Seven types of aggregator technologies were examined: summation, weighted sum, weakest link, weaker link, threshold, best shot, and better shot. Under summation, each country’s provision of the public good is simply summed, and this serves as the overall level that everyone in the spillover range would get. In the weakest link, the smallest contribution determines the overall level. The weaker link is a somewhat softer version, where the smallest has the greatest marginal effect, the next smallest has the second-greatest marginal effect, and so on. For the threshold, the goods level must surpass some threshold before any benefits are received. For the best shot, the largest contribution determines the overall level. And for the better shot, the largest has the greatest marginal effect on the overall level, followed by the next larger, and so on.

The four properties of a public good do not necessarily determine efficiency, which is typically achieved when the sum of the marginal benefits—over all of the public goods recipients—is at least equal to the marginal cost of provision. A pure public good under the summation technology has the poorest prognosis for supply efficiency and is prone to free-riding problems, where contributions of each party are regarded as perfect substitutes. This becomes less true for weighted sum and some other aggregators. In the impure public good situation, generally there is some under-provision and overuse, in keeping with a lack of exclusion. Club goods have the best prognosis, where tolls can be used to internalize the crowding externality and then use toll proceeds to finance the public good over time. For instance, if loans are paid for the club good, then these could be paid back based on a congestion-internalizing toll, and countries reveal their preferences. The loans can be provided by subregional institutions, such as the Central Asia Regional Economic Cooperation, the GMS, and the South Asia Subregional Economic Cooperation.

Understanding how individual nation’s contribution adds to the overall provision of regional public goods can help regional public good suppliers take the most appropriate modes of provision to avoid collective action problem.

With the weighted sum technology, there are much less free-riding tendencies from imperfect substitutability—it is important for the countries to know how they are affected differently by the public good, which requires collecting information.

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