Rural Development, Public Goods, and the West

David Zilberman

Public Goods (PGs) Economics and Policy

• Economists view PGs as goods with– Nonrivalry in consumption– Nonexcludability

• They are underprovided by markets.

• One role of government is to provide them.

• Within the political context, the notion of PGs is extended to the share values that should be pursued by government polices.

This Presentation

• Presents some of these broadly interpreted public goods in the context of the western United States.

• Argues that there is much heterogeneity among states and individuals that choices of– What should be pursued by the public sector– To what extent

are crucial to the policy debate.

Population density

West: 49.5 inhabitants per square mile

National: 77.98 Texas: 78.0 Washington: 86.0 California: 213.4 Wyoming: 5

Agriculture & minerals are more important in lower density states

Heterogeneity of the West

Public Goods of Importance Everywhere

National security

Knowledge

Education

Reduced poverty

Reduced crime and increase in personal safety

Reduced unemployment

Protection against risks

Reduced congestion

Environmental sustainability

Low tax rates

Public Goods Emphasized in the West

• Preservation of nature/wilderness

• Support of unique resources– Bodies of water

– Forests

– Land formation

• Lifestyle features– Preservation of small towns

– Freedom

– Outdoor amenities (hunting and fishing)

– Farming

Policy Challenge

• How to allocate limited public funds among public goods.

• What should be pursued by government and what by other organizations.

Unique Resources in the West

Globally unique western natural wonders: Crater Lake• Giant Sequoias• Grand Canyon• Meteor Crater• Monument Valley•Petrified Forest• Yellowstone Nationally unique:• Cascades• Devil's Tower• Great Salt Lake• Saguaro Cactus• YosemiteArcheological sites:Mesa Verde National Park• Dinosaur National Monument

History and Special Conditions that Shape Values and Public Goods

• Everyone values security, poverty elimination, education, and knowledge

• The West emphasizes freedom. – Some will argue that owning concealed weapons provides PG.– Special “crown jewels” (natural and man made) are public goods

with high existence value– Environmental amenities (clean water, survival of endangered

species)– Rural western lifestyle

• Minimum taxes– Which leads to conflict

Public Goods and Private Benefits

• Some public goods are valued because of the private goods they provide. – The survival of a river is valued because of fishing opportunities.

– In these cases the payment for private goods can be an indicator of value of a public good.

– Public goods can be financed by payments for associated private goods.

• Other public goods have a strong element of existence value.

• In these cases the value can be inferred from responses to surveys, voting, and direct contributions.

Heterogeneity and Public Goods

• Some PGs are valued across the board, others are valued mostly by subsets of citizens.

• Small minority groups may be willing to pay most for:– Agricultural land preservation– Open space– Old growth forest

• There is no reason why the taxpayers will provide public goods valued by subsets of individuals.

Financing of Public Goods Valued by Subgroups

Clubs and NGOs like the nature conservancy collect funds and provide public goods provided by members– As the case for public matching of private contributions

to support these public goods to address free-rider problems.

Provision by local agencies.Local governments should support public goods

valued by their constituents.

Conflicting Values and Public Goods

• Development vs. environmental preservation.• High taxes and public protection vs. low taxes and

personal responsibility.• People self select (vote with their feet) and live in

communities of like-minded individuals.• Differences among values of communities will be

reflected in differences of local public goods (Tiebout).

American Issues of Public Goods Provision

• Asymmetry between resources and tasks of federal and state governments.– High rate of federal taxes– Low rates of local taxes (my empirical hypothesis)

• Suggest a role for redistribution of federal money to pursue public goods at local levels.

• The federal government should provide appropriate public goods.

• Provide funds to local government to provide other public goods.

On Demography

• Age differences affect policy priorities.– Communities with aging population value physical and

economic safety preservation of the old, medical infrastructure.

– Communities with a young demographic value education, employment opportunities, and growth.

• Policies determine the fate of communities by investment in infrastructure– May lead to a gradual reduction in a number of

communities and establishments of a small number of growing centers.

And Geography• Land use and value depend on:

– Location:Distance to a reference point (city or transport center)

– Amenities: Natural and physical capital

• Remote locations with minimal amenities may need to be deserted.

• Location Amenities Use Example

Close Good view High income Marin

Close So so Business Downtown

Medium Low Low income Solano

Far Good Ag/recreation Napa

Far Low Range

American Perspective on the Government

• On the one hand government is perceived to be inefficient relative to private sector (Post Office vs. Federal Express), yet

• There is a long tradition of valued government activism– Highways

– Public research

– Support to farmers

• Public agencies are trusted (relative to Europe)– USDA and FDA(?)

– Public sector scrutiny of airports was demanded after 9/11

History and Role of the Government

• Land grants financed public goods early in American history (rail roads, education).

• Led to appreciation of government as supplier of amenities, but without much taxation.

• Conflict among – Desire for government activities– Unwillingness to pay– Appreciation of unique capacity of private sector– Fear of monopolies and cartels

• Drove debate on public goods in America.

Policy Entrepreneurship

Public sector affected industrial evolution:• By reducing red tape and enhancing competition.• By strategic investments

– In education

– Infrastructure (highways, Internet)

– Incentives to investors and innovators

– Regional promotion.

• Public investments affected direction of regional development (India’s investment in high-quality technical universities was key to its IT success).

Rural Development Is Assessed Constantly

• Rural development in the West has not been very successful.

• It is constantly assessed.• There is growing knowledge of constraints.• Not sufficient vision and best management practices.• Not every region can be developed successfully.• Regions with better potential should attract much of the

efforts.• For some regions, the best strategy is out-migration

(turn off the lights).

California Rural Policy Task Force: Impediments to Rural Development

• The threat of conversion of agricultural land to urban purposes.    

• Lack of technical assistance to rural communities.    • Need for infrastructure/technical development in rural areas. • Lack of availability of various telecommunications

technology.    • Impact of the Environmental Protection Act (endangered

species).   • State limitations of timber cutting and management

practices.   • Lack of funding for local tourism efforts.    • Inconsistent state and federal policies and priorities.