A constitutional theory of public goods

The conventional justification for public provision is market failure. This paper argues instead that the rationale for public provision of goods is the existence of utility interdependencies across demanders: individuals choose what goods are public at the constitutional level based on degrees of utility interdependence in consumption. The paper first develops an analytical argument for shifting from non-excludability and joint consumption to utility interdependence in the analysis of public goods. It then presents a model of the constitutional calculus concerning modes of goods provision, and applies the model to simple choice scenarios. Broad policy implications of the model are drawn. In particular, a constitutional theory of public goods asserts the need for careful institutional design and definition of public powers more strongly than the market failure view. (C) 1999 Elsevier Science B.V. All rights reserved.