In economics, externalities and public goods get introduced as distinct concepts, but can also be useful to consider as a single concept. Public goods, public bads, positive externalities, and negative externalities all have similar characteristics.
In the case of public goods and positive externalities, society is best off when spending money to fund public goods or subsidize positive externalities. The opposite is true for public bads and negative externalities, where the social optimum is achieved when public bads are prevented and negative externalities are taxed.
Some problems of this type only involve a few individuals and may be solved through negotiation. However, there are many problems which affect a large number of individuals and require a different approach.
With a large population, many externalities can be understood as public goods problems, where society “funds” a positive externality by subsidizing it and “defunds” a negative externality by taxing it. These problems have the same strategic difficulties as funding public goods, where freeriders avoid paying the appropriate costs.
Given the similarity of these coordination problems, I will refer to all of them as “public goods” for the remainder of this post.
Now, notice that the more localized a public good, the easier it is to provide, since the overall size of the problem is smaller, and individuals can negotiate directly. Additionally, all of the gains from a local public good accrue to the people in that location, providing a direct incentive to appropriately provide the good. Local public goods are something that government is well suited to providing, and under a system of competitive governance, they will be appropriately funded like in the Tiebout model.
Global public goods present a distinctly different problem from more localized public goods. Since there is no overarching state to provide global public goods, the original coordination problem returns. Global public goods will not be provided even under an efficient global market and effective local governance. In this sense, global public goods problems are harder and more neglected than most issues. For this reason, they deserve our attention.
With this motivation, here is a list of important global public goods:
- Increasing population growth
- New technologies and innovation
- Entertainment (Music, writing, TV, etc.)
- Individual and group rationality
- Information (news, prediction markets, statistics, etc.)
- Effective global markets
- Global monetary policy
- Handling of global market failures (e.g. handling global monopoly)
- International law
- Ecosystem and historical site preservation
- Eliminating pollution (CO2 emissions, water pollution, space debris, etc.)
- Preventing existential catastrophe (e.g. AI risk)
- Mitigating global catastrophic events (e.g. preventing pandemics)
- Mechanisms for producing global public goods (a mechanism for global public goods finance is itself a global public good!)
We can ask how the world should coordinate in all of these cases. There are several characteristic scales of cooperation, and important work to be done at each: coordination between individuals, coordination within communities, coordination within governments, and coordination between governments.
So far, lots of theoretical work has examined the financing of public goods between individuals (see for example dominant assurance contracts and quadratic funding). At the community level, Elinor Ostrom won a Nobel prize for her work on community management of the commons. Previously, I have looked at the problem of financing public goods within governments themselves (though my solution is a bit impractical) and I hope to offer some approaches to between-government public goods finance as well. More theoretical and experimental work on financing mechanisms at all of these levels is crucial.
Global public goods problems present a unique challenge compared to other issues since these are underprovided relative to local public goods or private goods. This indicates that methods for global public goods finance could have a huge impact by catalyzing cooperation on the biggest problems facing our society.