What Are Global Public Goods?
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- Authors: MOYA CHIN
- Published: December 3, 2021
Definition and scope
- Public goods are nonexcludable and nonrival: available to all and can be enjoyed repeatedly without diminishing benefits to others.
- Scope can be local, national, or global:
- Local example: public fireworks.
- National example: national defense.
- Global examples: natural environment, histories and cultures, technological progress, and everyday standards such as the metric system.
- Illustration: “No one can be prevented from using the metric system, and whenever someone uses it its usefulness to others is not diminished.”
Why public goods are undersupplied
- Core problem: insufficient incentives for private provision.
- Mechanisms that drive undersupply:
- Free rider problem: suppliers cannot charge users; everyone can use a public good whether or not they contributed.
- Small individual benefit vs. large spillovers (externalities): individual benefit may be too small to motivate provision even when societal benefit is large (example: vaccination yields individual health and large positive spillovers by preventing transmission).
- Temporal mismatch: benefits often realized in the future while costs are borne today; people overvalue the present relative to the future (examples: education and the natural environment).
- Conclusion: left to the private sector, public goods will tend to be undersupplied.
Role of governments and formal institutions
- Coordination is the historical solution: ensures contributions and proper weighing of costs and benefits.
- Governments can enforce regulation and taxation to mobilize resources and eliminate the free rider problem.
- Effective provision depends on strong institutions and inclusivity: inclusive governments value welfare across current citizens and future generations and can internalize spillovers to realize full societal benefits.
Are global public goods different?
- Theoretical characteristics: global public goods are nonexcludable and nonrival and exhibit free rider problems, spillovers, and short time horizons—same as local/national public goods.
- Practical differences and amplified failures:
- Global institutions often lack legal authority to enforce regulation and taxation or institutional capacity to coordinate needs of all citizens and generations.
- Coordination is harder because global institutions interact with national governments, which have distinct economic and political incentives and may struggle to provide public goods domestically.
- Case study: Paris Agreement
- Successes: accommodates countries’ different needs and responsibilities; commitment by developed economies to provide $100 billion in climate financing each year to mobilize resources for emerging market and developing economies.
- Limitations: the withdrawal of the United States in 2020 and chronic underprovision of climate financing highlight limited enforcement ability and persistent free rider problems.
Supply, demand, and prospects for global provision
- Historical pattern: institutions that supply public goods often formed in response to rising demand (examples cited: public education in the United States; IMF established after the Great Depression and World War II to promote global financial stability).
- Drivers increasing demand for global public goods:
- Greater interconnectedness through trade, capital flows, and migration relative to 1945 when many global institutions were founded.
- Recent crises heighten salience: COVID-19 increases demand for global public health; refugee crises increase demand for global peace; climate change increases demand for sustaining the global environment.
- Requirements for improved provision:
- A global framework that recognizes shared obligations, delineates country responsibilities, and enforces commitments.
- Comprehensive governance structures in global institutions to ensure legitimate decisions representing all present and future citizens.
- Outlook: if current momentum for global coordination can be harnessed and mobilized to build governance-capable institutions, the provision of global public goods may become a reality.
Source: "What Are Global Public Goods?" by MOYA CHIN, F&D Magazine, December 2021.
Content in this bundle
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- What Are Global Public Goods?
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- 什么是全球公共产品？ ● 《金融与发展》● 2021年12月号