Knowing and Making

Robert Peston highlights the Conservatives' idea (I originally wrote 'plan', but it's too vague and too early to be convinced they will actually do it) of moving public service provision into employee-owned, profit-making companies. He points out a few political constraints, in particular: If a John Lewis style primary school were a floperoo, would all the teacher-shareholders be sacked, or only the head? A resolution procedure for failing co-ops that didn't harm pupils - or patients of community nursing teams - would plainly be essential. In fact, this is probably a constraint on all private provision of public services. The co-op structure is not really an issue either way, except that it sounds nicer and less cut-throat than straight privatisation. I'm a fan of market solutions and have generally been well-disposed towards the idea of private companies bidding to do public work - why shouldn't a company be able to offer medical treatment or training...

Mark Thoma posts an interesting article from EurekAlert about some Caltech research. The researchers set out to solve the free rider problem by measuring people's real valuation of public goods. The classic problem with public goods is that if you ask people what the service is worth, they have an incentive to lowball their answer. I may claim that a new railway line, or the NHS, is worth only £10 a year to me. That way, I am likely to pay lower fees or taxes for it, and since I think that lots of other people will put a higher value on it, the government will build the railway and keep funding the NHS regardless of my feelings. It's the same dynamic as in the tragedy of the commons; no matter what I do, the behaviour of all the other people will determine whether the good is provided. My action won't make any real difference to the outcome, so I may as well act selfishly. The consequence, however, is that if everyone claims to put a low value on the outcome, the governme...