Edited by Sultan Hafeez Rahman, Sridhar Khatri and Hans-Peter Brunner
Chapter 7: The Provision of Regional Public Goods in South Asia
1 Khaja Moinuddin INTRODUCTION Public goods (PGs) satisfy the twin properties of non-excludability – that is, no consumer can be excluded from its consumption, say through price mechanism or physical controls; and non-rivalry – that is, the consumption of the good by one person does not diminish its availability for use by others. When the domain of the PGs relates to the consumers in a defined region comprising several countries, those goods are termed regional public goods (RPGs). Typically, optimal provisioning of RPGs has to deal with free-rider and cost-sharing issues among the participating countries. The effectiveness of regional cooperation and integration (RCI) could be measured in terms of the quality and quantity of RPG outputs produced under them (Devlin and Estevadeordal, 2002). At a general level all RCI activity could be regarded as an RPG since the classical properties of publicness are found in RCI as an activity. However this approach blurs the focus on the provision of specific RPGs which is required from an operational point of view. A more operationally helpful approach is to view specific RPGs as contributing to the strengthening or achieving of RCI.2 A coordinated approach will help determine the optimal provisioning of an RPG. This is illustrated in Figure 7.1 for a two-country case.3 With coordination and cost-sharing the total quantity of RPG supplied is Q3 at combined price of P3. This is the optimal or desired level of the provisioning of the RPG where the marginal cost of the RPG supply equals the sum...
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