Public Goods, Redistribution and Rent Seeking

Public Goods, Redistribution and Rent Seeking

The Locke Institute series

Gordon Tullock

Gordon Tullock, eminent political economist and one of the founders of public choice, offers this new and fascinating look at how governments and externalities are linked. Economists frequently justify government as dealing with externalities, defined as benefits or costs that are generated as the result of an economic activity, but that do not accrue directly to those involved in the activity. In this original work, Gordon Tullock posits that government can also create externalities. In doing so, he looks at governmental activity that internalizes such externalities.

Chapter 2: Coase and All That

Gordon Tullock

Subjects: economics and finance, public choice theory, politics and public policy, public choice


Economists sometimes say that Coase (1960) solved the problem of externalities. While I do not begrudge him his Nobel prize, I have to point out that what he did was clarify the problem, not finally solve it. In a way he simply demonstrated that Pigou, at the time the standard authority on externalities, had misunderstood the problem. Pigou said that private property alone would not necessarily lead to an optimal outcome. Government action was frequently necessary. Individual actions may impose costs on other individuals and hence we need a government to deal with it. So far Pigou (1929) is clearly right, although it is not obvious that he went far beyond Adam Smith. In a way what he did was clarify the reasoning in an area where earlier economics had generally understood the problem, but not clearly stated it. But if the market and private property do not lead to an optimal outcome because of externalities, that does not prove that governments will do better. We look at the early history of governments and notice that they were largely forceful efforts to transfer resources to powerful people. Those mighty warriors and builders, the Assyrians destroyed the bulk of the Israelite state. Only the small Southern fragment centered on Jerusalem escaped them, and that was not because of good government, but because of a fortuitous outbreak of plague, which frightened them away. Later of course, Jerusalem itself was taken by another government, the Babylonians, who took the bulk of the...

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