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2018 | OriginalPaper | Chapter

Public Goods, Club Goods and Specialization in Evolving Collaborative Entities

Author : Vasilis Zervos

Published in: Institutionalist Perspectives on Development

Publisher: Springer International Publishing

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Abstract

Since the days of Adam Smith the concept of specialization and the invisible hand has seen applications throughout the macroeconomy such as global trade patterns and competitive forces, but also at the microeconomic level through the specialization of firms and cooperative entities. This chapter examines the welfare economics implementation in EU and ESA within the above context, focusing on specialization in alliances and the provision of public goods with relevant compensating mechanisms, drawing analogues between the macroeconomy and the space institutional sector. The analysis shows how, in the absence of pure pubic goods within a collaborative entity, the transformation of a collaborative entity into an industrial mechanism of support for commercial benefit maximization results in inefficient allocative outcomes.

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Appendix
Available only for authorised users
Footnotes
1
A. Smith focuses in his examples mostly on the natural endowments as a source of specialization, though seemingly not distinguishing them from artificial advantages in terms of their importance.
 
2
This is seen as a key reason why Plato devotes much of his attention to the ‘just’ political arrangements once individuals move from ‘xenoika’ towards a social partnership development (polis).
 
3
This is clearly assuming that the differences in rewards to economic agents stem from specialization and not from effort differences, even though in the long-run these may be related (e.g. higher rewarding specialized sectors clearly are expected to result in more effort and motivation).
 
4
Arguably this is a more realistic mechanism offering a high level of flexibility compared to the pareto principle. Furthermore, the compensating mechanism may offer the option of overall improvements across the whole set of agents.
 
5
A possible alternative term to use here would be to introduce the term ‘pure’ to club goods, allowing for non-rivalry and non-excludability within the club, as opposed to situations where there exist discretion leading to partial access. In this case we could refer to ‘pure club goods’ as the sharing of benefits would be equal across all members, while maintaining the non-excludability and non-rivalry characteristics within the club (see McNutt 1999 for a discussion on club goods). Hence, the terms ‘public’ is defined within the context of the alliance, or system, or collaborative organization/partnership (like ESA).
 
6
Though the quantities under the public good and the private good additive cases can be compared more meaningful compared to relative prices and profits. Prices may be comparable, though under a public good case one would expect significant externalities and shadow price effects when compared to the private good additive case. In this case, a comparison of the profits seems less meaningful.
 
7
The issue of governance of such systems that evolve from research and development collaborations into full-blown merged entities (Arianespace, Airbus) and programs with operational characteristics (like EC Galileo) arises for Europe specifically in view of dual-usability and the complex institutional environment of Appendix 1.
 
8
There are also certain desired theoretical properties for such a cost function: a TC function must be non-negative, non-decreasing, concave and linearly homogenous in input prices (Baumol et al. 1982). The cost function employed is presumed to be a function only of output quantities and not input prices. This method of formulating cost functions makes the analysis less complicated, without much loss in generality when the main concern is to examine the impact of output changes (Baumol et al. 1982: 453).
 
9
The vertical axis measures the difference: qi (Case 1)–qi (Case 2) which is the same as qdi (Case 1)–qdi (Case 2), for i =1, 2.
 
10
Appendix 2 shows the export performance of selected economies with regards to the A&D industry through time. Even in the absence of the all-important intra-European trade patterns, the export-leading activity of economies like France is obvious while the rising character of German industry and the mixed results of the UK as the leading European A&D nations are observed. Finally, the cases of countries like Greece that has experienced a significant income shock in recent years (post-2009) is visible in the narrowing of initial significant trade deficits that are quite sharp, especially in the A&D sector.
 
Literature
Baumol, W. J., Panzar, C. J., & Willig, D. R. (1982). Contestable markets and the theory of industry structure. New York: Harcourt Brace Jovanovich.
Dunning, J. (1992). Multinational enterprises and the global economy. Wokingham: Addison-Wesley.
Laffont, J. J., & Tirole, J. (1993). Theory of incentives in procurement and regulation. Cambridge, MA: MIT Press.
McNutt, P. (1999). Public goods and club goods. In B. Bouckaert & G. De Geest (Eds.), Encyclopedia of law and economics, Vol. I. The history and methodology of law and economics (pp. 927–951). Cheltenham: Edward Elgar.
Smith, A. (1976). In R. H. Campbell & A. Skinner (Eds.), An inquiry into the nature and causes of the wealth of nations. Indianapolis: Liberty Classics.
Smith, A. (2006). Theory of moral sentiments. Dover Philosophical Classics (reprint from Sixth Edition, 1790, A. Millar. Original printed in 1759).
Williamson, O. E. (1989). Transaction cost economics. In R. Schmalensee & R. Willig (Eds.), Handbook of industrial organization (pp. 135–182). Amsterdam: North Holland.
Zervos, V. (2011). Conflict in space. In L. Braddon & K. Hartley (Eds.), Handbook of the economics of conflict. Cheltenham: Edward Elgar Publishers.
Zervos, V. (2015). European policies and the space industry value chain. Conference Paper, 19th Annual International Conference on Economics and Security, Grenoble, France.
Metadata
Title
Public Goods, Club Goods and Specialization in Evolving Collaborative Entities
Author
Vasilis Zervos
Copyright Year
2018
Book
Institutionalist Perspectives on Development

Print ISBN: 978-3-319-98493-3

Electronic ISBN: 978-3-319-98494-0

Copyright Year: 2018

DOI
https://doi.org/10.1007/978-3-319-98494-0_9