Defining International Public Goods: Conceptual Issues

[Pages:25]Defining International Public Goods: Conceptual Issues

by Oliver Morrissey, Dirk Willem te Velde and Adrian Hewitt

Overseas Development Institute, London1

1 Draft of chapter 2 in M. Ferroni and A. Mody (eds), Strategies for International Public Goods (Kluwer,

forthcoming). The authors are Research Fellows at the Overseas Development Institute. They thank Marco Ferroni, Ashoka Mody, and Simon Maxwell, Sheila Page and other colleagues at ODI for helpful comments. All opinions and interpretations are those of the authors alone and should not be attributed to any institutions. The authors are grateful to the World Bank for funding. Correspondence to oliver.morrissey@nottingham.ac.uk.

111 Westminster Bridge Road, London SE1 7JD, UK

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1.Introduction

The specific concern of this chapter is with answering the question `What are international public goods?' That is, our concern is with defining and classifying types of public goods and identifying which of these can be considered to provide benefits on an international scale or with an international scope. Other chapters in this volume address issues relating to methods of financing public goods, deriving criteria for determining contributions to the cost of provision and how these should be made and shared (Chapters 3 and 4), and discussions of particular types of global public goods (e.g. Chapter 6). While we may comment, where appropriate, on such matters, they are tangential to our main focus. In particular, we want to `operationalize' the concept and provide a basis for Chapter 5, which quantifies how much of donor aid can be said to have financed the provision of public goods by developing countries (including public goods that benefit these countries, and contributions of such countries to the provision of international public goods). In this chapter, we begin with very broad concepts, distinguishing national and international spatial ranges and identifying the types of benefits that give rise to public goods (and therefore aid classification). We then proceed to refine these to identify types of expenditures in various sectors that contribute to the provision of public goods.

The concept of global public goods achieved prominence with the UNDP publication

Global Public Goods (Kaul et al, 1999). This adopted a broad and wideranging

definition, that has subsequently been refined (e.g. Kanbur et al, 1999). Most recently,

GDF (2001) distinguishes between `core' and `complementary' activities associated with

the provision of international public goods. The essential point here is that international

public goods provide globally available benefits; providing these benefits is therefore the

`core' activity. However, it may also be necessary to help people or countries to actually

avail of the public goods (to consume them, as it were). Such enabling expenditures are

`complementary' to the public goods. This is discussed in some detail below (section 3)

where we also consider another form of complementarity ? expenditures (on national or

local public goods) may be required to enable countries, especially poor countries, to

contribute to the provision of international public goods. It is important also to draw a

clear distinction between contributing to provision (production) as against contributing to

the cost of provision (financing); we are primarily concerned here with the former,

although we make some comments regarding the latter in the final section.

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The concept of international or global (the terms tend to be used interchangeably) public goods is not as clearly defined as one would wish. There is now a large literature and while there is a broad consensus regarding what is at stake and what is being discussed, the nuances of writers differ. Many of the differences are essentially semantic, and should be dispelled at the outset. Each of the three words can be questioned. Does `international' really have to mean that the benefits are completely global, in the sense that everybody on the globe benefits? In a broad sense yes, but in a narrow sense no. Almost everybody would agree that, for example, eradication of a disease (say malaria) is an international public good. In principle, everybody can benefit because the risk of contracting the disease is eliminated. In practice, one could identify many people for whom the initial risk of contracting the disease was effectively zero. They derive no discernible (or measurable) benefit, but the benefit exists nevertheless (the initial risk may have been imperceptible, but it was nonzero and is now zero). Thus, the benefit should be available to all even if some do not actually avail of the benefit. This relates to the willingness of beneficiaries (in this case the global public) to contribute to the cost of providing the public good.

A directly related issue is the spillover range to which the benefits apply (Sandler, 2000, provides a detailed discussion). One can envision a range over the spectrum from global to local, with international, regional and national arrayed in between. There is no clear delineation of each point on the spectrum. The least evident distinction is between global and international public goods; it is expedient and reasonable to treat them as essentially synonymous. We use the term international largely for convenience, and to signify that while the benefits extend well beyond national boundaries they may not apply everywhere on the globe. Nationallevel education would be considered a national public good, as the benefits accrue largely to the nation collectively. If educated people can migrate does this imply crossborder effects? The answer is no, because the individual migrant derives a private benefit; if this is fully recompensed in the destination country, there is no public good to that country. More importantly, it is not the provision of

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education in one country that provides a benefit to the other, but the act of migration.2 A national public good would be defined where the public benefits accrue to the public of the nation. Similarly, a regional public good would be defined as where the benefits accrue to the public of nations with contiguous borders (adjusting for specific issues that may arise regarding islands); see Ferroni (2001) for a discussion. A local public good is where the benefits are inherently and in large proportion subnational. For our purposes, it is sufficient to distinguish national public goods from those with crossborder ranges. This leads to our first premise: an international public good is where the benefits are inherently international in range.

One could also question the precise meaning of `public' in the context of public goods.

This is at the heart of the economic concept (discussed in the section 2 below) and means

in essence that `there are benefits that are not private in nature' so that the benefits accrue

to everybody (within the spillover range). In essence, the benefits are shared by all

(GDF, 2001). In the same way that global benefits do not imply measurable benefits to

everybody on the globe, public benefits do not imply that every member of the public

actually derives a measurable benefit. More precisely, it does not require that everybody

derives the same level of utility from the presence of the public good. This leads to our

second premise: benefits are public if in principle every member of the public can derive

benefit from provision without necessarily implying that all people derive a measurable

benefit. As we will see below, the economic concept adds another condition: that the

same level of benefit is available to everybody. This gives rise to a distinction discussed

in section 3 below, that between consumption and production. Most discussion of public

goods is about producing them, or making the benefits available (in fact, much of the

2 A different example may make the point more forcefully. Consider somebody from a poor country who is educated in a rich country. The individual derives a private benefit. Assume that person then works for a global research institution. The contribution to global knowledge is an international public good, but the education received by the individual is a complementary activity that helps them to contribute to the core activity of producing global knowledge. Assume, alternatively, that the person returns to the poor country and assists that country in utilising or accessing global knowledge. Again, their education is a complementary activity, enabling the poor country to `consume' the international public good. In either case, the education itself is complementary and, as it provides external benefits in enhancing human capital, education provides a national public good within a country. Education itself is not an international public good, but it is a complementary activity.

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discussion is about contributions to the costs of provision). The case for provision can be made independently of the issue of whether every potential beneficiary actually derives the benefit (i.e. consumes, or avails of, the public good), although this will relate to their willingness to contribute to the cost of providing the public good (see section 5). However, utility is derived from consumption therefore to maximise utility (total benefit) it is desirable to enable everybody who wants to benefit. If the condition of being poor prevents such people benefiting from public goods, then measures to reduce poverty increase the utility derived from public goods. This is one reason why poverty reduction is desirable, but it does not imply that poverty reduction itself is a public good.

The final semantic issue to dispense with is the word `good' itself. This is relatively straightforward ? it means benefits that provide utility or satisfy wants. It does not mean merchandise (as in `goods and services') nor should it be interpreted as normative (as in `for the good of the public') even if it is. In this sense, the elimination of a public bad (e.g. disease or pollution) is itself a public good, where bad here means disutility. Thus, our third premise is that a public good is a benefit that provides utility to the public. The distinction between a private and public good brings us back to the discussion of `public' above (see section 2 below).

The three premises stated above can be combined into a definition. An international public good is a benefit providing utility that is in principle available to everybody throughout the globe. An international public good does not imply measurable benefits for everybody in every country or nation; it does require that the benefits are available to the global public. The utility derived by individuals will depend both on their preferences and on their capacity to consume (e.g. the uneducated are constrained in their ability to benefit from global knowledge). In the case of a true international public good, the same level of benefit is available to everybody. This does not imply that everybody derives the same utility from the public good. The eradication of malaria may provide more utility to somebody living in Uganda than to somebody living in Iceland, for example, but the benefit of eliminated risk is provided equally to everybody. Thos living in Iceland,

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however, may be less willing to pay for the costs of eradication (see section 5 below). Eradication of a disease is an international public good because it eliminates the risk. On the other hand, reducing the prevalence of a disease (reducing the risk) may more appropriately be defined as a regional public good. The reduction in risk benefits those living where it is prevalent. Those living far away initially faced an imperceptible risk, and still do; in effect they do not benefit.

The definition above provides an answer to the question `what is a public good' (it is not a unique answer, as others have provided equally accurate if slightly different definitions). In the remainder of this chapter we attempt to add flesh to the definition, to operationalize the concept. We attempt to answer the question `is a particular benefit an international public good' or, more generally, to establish the characteristics of a benefit that render it a public good. Section 2 discusses the economic concept of a public good. This is the source literature and helps to establish the fundamental characteristics. The `geographical' ranges of different types of public good are discussed elsewhere (Sandler, 2000) and receive only brief mention here. In Section 3 we identify the types of benefits associated with public goods and use this to address the relationship between international and national public goods. This includes a discussion of the related distinction between core and complementary public goods (GDF, 2001). A classification of public goods according to sectors ? environment, health, knowledge, governance and peace ? is provided in Section 4. Section 5 concludes, relating our classification to implications for financing the provision of international public goods in poor countries.

2The Economic Concept of Public Goods A classic economic definition of a public, or social, good is one `which all enjoy in common in the sense that each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good' (Samuelson, 1954: 387). In economics, a pure public good must exhibit two characteristics. First it should be nonexcludable, implying that once the good is provided nobody can be prevented

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(excluded) from consuming it (enjoying the benefits of the good). This implies that charging a market price is not effective (as freeriding can not be prevented), hence provision would not be attractive to the private sector. If excludability is difficult or costly, there is a case for public provision of (or contribution to the cost of providing) the good so that the social level of provision will be attained. Second it should be nonrival in consumption, which means that consumption by one person does not diminish the amount available to others. `When benefits are nonrival it is inefficient to exclude anyone who derives a positive benefit, because extending consumption to more users creates benefits that cost society nothing' (Kanbur et al, 1999: 61). In practice, goods will be impurely public, as neither characteristic may be exhibited completely. Many goods may be quasipublic or mixed public/private, in the sense that they are nonrival or non excludable but not both.

The degree of `publicness' refers to the extent to which people can be prevented from benefiting once the good is provided. In the case of a pure public good, nobody can be prevented from enjoying the benefits ? they cannot be excluded nor do the benefits enjoyed by others reduce the benefit available to anybody else. A lighthouse is a practical example ? passing ships cannot (practically) be prevented from benefiting simultaneously from its presence. A similar point could be suggested regarding air traffic control or satellite communications but there is an important difference: it is technically practical to prevent some from benefiting (from receiving signals). This possibility of exclusion means that such goods are not purely public (they are described as club goods ? only members of the club are granted the benefits).

A related concept is what has been termed the spatial range (GDF, 2001) or spillover range (Sandler, 2000) ? over what geographical range does the good have the features of publicness? Kanbur et al (1999) distinguish three types of spillover range ? national, regional and global. These distinctions are not precise and, as discussed above, we conflate regional and global as international. A lighthouse benefits only ships within sight of it ? in this sense it is a local public good. Similarly, clean water or air are public goods

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in a localised area. This area may well spread across national boundaries and could in some circumstances have a global range. A pure global public good would have to be globally nonexcludable and nonrival. This is a demanding requirement, and perhaps unduly restrictive. However, many will have effects across national boundaries, hence it is reasonable to treat global and international as operationally equivalent, encompassing the subset of regional public goods (which are also international but with a narrower range). These can be distinguished from national public goods whose range of effects corresponds to national boundaries.

As international public goods have a spatial range across borders and continents, provision and financing should be coordinated, if not actually delivered, at an international level. By implication, some of the financing for international public goods would be provided to an agency or agencies with a global remit (see section 5). In contrast, national public goods are inherently national such that they are delivered at the national level, some proportion (usually substantial) of the benefit accrues only at the national level, and financing would be at the national level (e.g. health and education). There is of course a grey area, as national goods can have spillover effects. We will not be concerned about precisely when national public goods become regional, or regional become international (and whether the latter are truly global). Some common sense is justified in practice.

Whilst a clear distinction can be made between public goods and externalities in theory, the practical distinction is limited. The essential feature of a public good is that, once provided, the same quantity is available for `consumption' by all individuals within the spatial range and this quantity is the total. In the case of a private good, by contrast, the total quantity is the sum of the amounts consumed by each individual. An externality, however, does not refer to the quantity available but to an interdependence between agents. In particular, it refers to `an interdependence that occurs outside of the price mechanism' (Cullis and Jones, 1992: 41). That is, consumption or production by one agent has effects on other agents (either as consumers or producers). It will help to develop a common example.

Cigarettes are private goods: consumption is excludable and rival, and total consumption is the sum of consumption by individuals. However, the smoke and smell emitted by an individual smoking a cigarette creates a disutility to others. This disutility is a local public bad within the spillover range. One response could be to try and internalise (bring within the price mechanism) the externality by taxing cigarettes. The idea is that the tax prices the disutility and reduces consumption, therefore reducing the external bad. However, this does not eliminate the bad, and those suffering the disutility may seek

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