The political economy of publicly provided private goods

This paper integrates two different approaches to the analysis of public provision of private goods (education, health care, day care, etc.). While normative public economics has established an efficiency case for such provision, the commonly held political economy view has been that it is an economically inefficient phenomenon generated by the political process. We establish a political economy framework which in general yields an efficient choice of distributional policy. It follows that the central mechanism studied in the normative theory is equally relevant to voting models of decisions on public provision. It is shown that under plausible information constraints economically efficient public provision of private goods will be part of politically rational decisions. The result is established both within a median voter process and a representative democracy of political parties. (C) 1999 Elsevier Science S.A. All rights reserved.