Roads and Public Goods

by Don Boudreaux on May 2, 2009

in Travel

Commenting on this post, Greg Totten said:

Just want to point out that the reason America has been decentralizing
and moving out to the suburbs is in large part cost based due to
Federal highway and road subsidies. If we had never subsidized the move
to the suburbs, would we be there in the first place? As I see it maybe
we should stop fixing all those roads and then see if people still want
to live there. This commentary makes it seem like people made a
conscious economic decision to move to the suburbs, but I believe a lot
of it was cost based.

This analysis is quite frequently made, and it might be correct – or might be incorrect.

This analysis is incorrect if, as many (most?) people claim or simply assume, highways are public goods — goods that the public demands but that private markets allegedly supply only in insufficient quantities.

The reason private markets allegedly undersupply public goods is that, for such goods, private firms find it to be too costly to exclude non-payers from enjoying the benefits of these goods ("nonexcludability").

If the classic theory of public-goods provision is correct, government supplies public goods just as the private market would supply such goods if the private market were not infected with incentive problems that prevent the private market from doing its job in these situations.

So if the classic theory of public-goods provision is correct, the roads and highways supplied by government are not a distorting subsidy to automobile transportation.  These roads and highways are, instead, just what the public wants and is willing to pay for in full — it's just that the alleged public-goods nature of these goods means that they can be supplied in optimal quantities only by government.

Now there are plenty of problems — theoretical and, especially, practical — with the classic theory of public goods.  For example, it assumes too blithely that collective-decision-making procedures accurately discover the publics' true demand for public goods; it overlooks the perverse incentives in the political arena that prompt government officials to act in ways that are inconsistent with the 'public good'; and it turns a blind eye to the many creative ways that private persons have through the years organized themselves voluntarily to supply 'public goods' that, allegedly, would never be supplied privately.

And in the case of U.S. interstate highways especially, the notion that it is too difficult to exclude non-payers from traveling along them is incorrect.

So I'm more than sympathetic to the claim that government provision of roads, bridges, and highways distorted Americans' decisions over the years to drive and live in suburbs.  But my sympathy for this claim comes from my rejection of the classic, naive case for government provision of public goods — and once that case is rejected, it cannot then be used to argue for government provision of, say, light-rail transport.

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