Post date: Thu, Jun 13, 2024
Category: Public Finance
By: Leo Kipkogei Kemboi,

Introduction 

The Constitutional Theory of Public Goods argues that people decide which goods are public goods at a constitutional level. This decision is based on how much their enjoyment of the good depends on others also enjoying it (Marmolo 1999).i The theory suggests that the government should provide public goods where there is significant demand and the benefits of the good are non-rival and non-excludable. The conventional theory of public goods assumes a fixed population and focuses on the government’s role in providing public goods. 

The traditional economic definition of a public good centers around two key characteristics: non-excludability (it’s difficult to prevent people from using it, even if they don’t pay) and non-rivalry (one person’s use doesn’t diminish another person’s enjoyment). This definition focuses on the nature of the good itself. For instance,  air is considered a public good because everyone benefits from it, and one person’s enjoyment doesn’t diminish another’s. An example of Public Good is Public Economic data(Kemboi, 2022)ii. Public Economic data from the Kenya National Bureau of Statistics (KNBS) is a public good, and it shares two features with other public goods: non-rivalrous in consumption and non-excludable in access. It is non-rivalrous since using public data does not affect or reduce the information available to others. It is not excludable since preventing others from accessing economic data, which is publicly available, is impossible. In a free market, a public good is frequently (but not always) undersupplied because its non-rivalrous and non-excludability properties create an incentive not to pay. 

On the other hand, the Constitutional Theory of Public Goods shifts the focus from the good’s inherent properties to the decision-making process behind deeming something a public good. It argues that a good becomes public when people collectively decide, at a constitutional level, that its enjoyment is highly interdependent (Marmolo 1999).iii This means they believe everyone benefits when everyone has access, regardless of whether the good is technically excludable or rivalrous. For example, education might be considered a public good under this theory, not just because of its inherent properties but because society agrees that everyone benefits from a well-educated populace. 

The Constitutional Theory suggests that governments should provide public goods with sufficient public demand, as determined at a constitutional level. This contrasts with the conventional theory, which focuses more narrowly on the government’s role in providing public goods without considering the population’s underlying preferences and decision-making processes (Anomaly, 2015).iv The theory of local public goods differs from the conventional theory of public goods in a key aspect: the population of each community is assumed to be fixed in the latter. In contrast, the theory of local public goods determines the population allocation among different communities (Stiglitz 1977).v This is an important distinction, as it allows for competition between communities to attract citizens. Essentially, it supposes that people agree at a macro level that their enjoyment of a good depends on everyone having access to it. In that case, they will choose to make it a public good at a constitutional level. This contrasts with the traditional view of public goods, which focuses on market failures as the reason for public provision. 

Economist Paul Samuelson, who was responsible for deriving public goods theory, developed a guideline for how public goods could be produced. The Samuelson Rule provides the framework for determining the optimal level at which these goods should be provided. Due to their characteristics of non-rivalry and non-excludability, public goods are often under-provided by the free market, leading to a market failure. The Samuelson Rule addresses this by guiding governments on how much public good can be provided to maximize societal benefit. At its core, the rule emphasizes efficiency in resource allocation. viAdvocating for a balance where the total marginal benefit of the public good equals the marginal cost of producing one more unit helps avoid under-provision, where societal benefits are left unrealized, and over-provision, where resources are wasted. This balancing act ensures society extracts the most value from its available resources. 

While perfectly implementing the Samuelson Rule in practice can be challenging, it is an invaluable benchmark for policymakers. It encourages them to move beyond a narrow focus on costs and instead consider the full benefits a public good offers when making decisions about funding and allocation. This broader perspective is essential for effective governance and resource management. Furthermore, the Samuelson Rule underpins much of public finance theory. It provides a robust justification for government intervention in providing goods like national defense, public infrastructure, and environmental protection – goods essential for societal well-being but unlikely to be adequately provided by market forces alone. 

Even though the Constitutional Theory of Public Goods assigns “public goods” characteristics to some private or club goods, it doesn’t fundamentally change the inherent nature of those goods. Instead, it applies a different nomenclature for how the Constitution views them. 

The Constitutional Theory of Public Goods doesn’t magically transform a private good, like a gym membership, into a pure public good, like national defense. Instead, it recognizes that the “publicness” of a good can be a matter of political and constitutional choice, not just inherent economic characteristics. The theory highlights that certain goods while possessing some private good traits, might be elevated to a “public good” status within a constitutional framework. This elevation often stems from two key factors. First, even if consumption is somewhat excludable, the good might be deemed essential for a well-functioning society, such as education or certain infrastructure projects. Second, access to the good might be inherently linked to protecting fundamental rights enshrined in the Constitution, as seen with healthcare or legal representation.

 

Samuelson Rule and Constitutional Theory of Public Goods  

 The Samuelson Rule, a foundational principle of public goods economics, provides a framework for understanding how to efficiently provide public goods by aligning societal benefit with production costs. It suggests that societies should strive to produce public goods until the total societal benefit, represented by the sum of individual marginal benefits, equals the marginal cost of production.vii This principle intersects significantly with the Constitutional Theory of Public Goods, which delves into the rationale and mechanisms behind societal choices regarding public goods. 

The Samuelson Rule implies that constitutional choices about public goods are not arbitrary but rather reflect, even if imperfectly, a society’s attempt to maximize collective well-being. Constitutions, by defining the roles of government, establishing rights, and outlining procedures for decision-making, can be viewed as frameworks designed to facilitate the efficient provision of public goods. They establish rules and institutions to overcome market failures and address collective action problems inherent in providing goods that benefit everyone. However, the Samuelson Rule also highlights a key challenge: accurately measuring and aggregating individual preferences for public goods. This is particularly relevant to constitutional theory as it raises questions about how effectively constitutions capture and represent the diverse preferences of citizens. While pursuing efficiency is essential, constitutional theory reminds us that distributing costs and benefits associated with public goods is equally crucial. Constitutions often incorporate provisions, such as equality clauses, to ensure fairness and prevent disproportionate burdens on specific groups.  

The Samuelson Rule offers a compelling economic rationale for why societies enshrine certain public goods within their constitutions. It suggests that these choices are rooted in maximizing societal well-being. However, constitutional theory provides a broader lens, reminding us that enshrining public goods is complex and influenced by political bargaining, power dynamics, and the constant need to balance efficiency with equity. 

 

Constitutional Theory of Public Goods under the Constitution of Kenya 2010 

The Constitutional Theory of Public Goods, as reflected in the Constitution of Kenya 2010, diverges significantly from the traditional economic understanding of public goods. While the traditional view narrowly defines public goods based on their characteristics of non-excludability and non-rivalry, the Constitutional Theory broadens the scope to encompass a wider array of rights, freedoms, and societal goals deemed essential for collective well-being. For instance, the Constitution of Kenya 2010 recognizes education, healthcare, and freedom of expression as public goods, even though they might not perfectly fit the traditional definition.  

The justification for providing these goods shifts from a purely economic rationale to a deeper societal commitment. The traditional view emphasizes market failure as the primary reason for government intervention, arguing that the private sector is ill-equipped to provide public goods efficiently. In contrast, the Constitutional Theory grounds the provision of these goods in a collective societal decision enshrined in the Constitution. These goods are considered so fundamental to a just and flourishing society that they are guaranteed rights, regardless of market efficiency. The inclusion of socio-economic rights in the Constitution of Kenya 2010 exemplifies this commitment, as market forces might not solely drive their provision. 

The Constitution itself takes on a more central role in the Constitutional Theory. While the traditional view acknowledges the Constitution’s role in enabling the government to provide public goods, the focus remains on economic justification. Conversely, the Constitutional Theory positions the Constitution as embodying a fundamental social contract. It reflects the collective agreement of citizens on the paramount importance of certain goods, enshrining them as rights and guiding government action towards their realization. The Bill of Rights in the Constitution of Kenya 2010 exemplifies this, serving not just as a list of individual liberties but as a blueprint for a society founded on dignity, equality, and social justice. Here are examples from the Constitution of Kenya 2010, categorized and justified as public goods under the Constitutional Theory of Public Goods.  

 

	Good	Constitutional Theory of Public Goods
1	Right to Life	A society where life is protected provides the fundamental security and stability upon which all other rights and freedoms depend. It is a prerequisite for a functioning society and benefits everyone by creating an environment where individuals feel safe to pursue their goals and contribute to the common good.
2	Right to Dignity	Recognizing every individual’s inherent worth and dignity is essential for a just and humane society. Respect for dignity fosters a sense of shared humanity, reduces conflict, and promotes social cohesion, ultimately benefiting everyone.
3	Freedom from Torture and Cruel Treatment	Prohibiting torture and cruel treatment upholds the basic moral fabric of society. It safeguards human dignity and reinforces the principle that everyone deserves to be treated with respect, regardless of their actions. This protection benefits everyone by creating a more just and humane society.
4	Freedom of Conscience, Religion, Belief and  Thought	This freedom recognizes the inherent right of individuals to hold their own beliefs and values. A society that respects freedom of conscience is more likely to be diverse, tolerant, and accepting of different perspectives, ultimately benefiting everyone by fostering creativity and intellectual growth.
5	Freedom of Expression	The free and open exchange of ideas is the cornerstone of a democratic society. It allows for the challenging of established norms, the exposure of wrongdoing, and the development of innovative solutions to societal problems. This freedom benefits everyone by promoting a more informed, engaged, and resilient citizenry.
6	Freedom of the Media	A free and independent media acts as an essential watchdog, holding those in power accountable and providing citizens with the knowledge they need to make sound decisions. This accountability and transparency benefit everyone by promoting good governance and preventing abuses of power.
7	Freedom of Association	The ability to associate freely with others who share common interests or goals is essential for collective action and protecting individual rights. This freedom strengthens democracy by allowing citizens to organize, advocate for change, and hold their leaders accountable.
8	Freedom of Movement and Residence	The freedom to move freely within one’s country promotes economic opportunity, social integration, and personal fulfilment, and it allows individuals to pursue education, employment, and social connections, ultimately benefiting society by fostering a more dynamic and interconnected population.
9	Right to Privacy	Protecting individual privacy is crucial for personal autonomy and freedom from undue intrusion. It allows individuals to develop their beliefs, express themselves freely, and form relationships without fear of unwarranted surveillance or interference. This autonomy and freedom are essential for a thriving democratic society and benefit everyone by fostering creativity, innovation, and a sense of security.
10	Protection from Slavery and Forced Labour	Upholding this right ensures human dignity and prevents exploitation. A society free from slavery and forced labour is more just, equitable, and economically productive. It benefits everyone by promoting respect for human rights, fostering fair labour practices, and maximizing human potential.
11	Right to Education	An educated populace benefits everyone through increased productivity, civic engagement, and reduced crime. Education enables people to engage in society fully, contribute to the economy, and make educated decisions about their lives and communities.
12	Right to Healthcare	A healthy population is more productive and reduces the strain on public resources. Access to healthcare enables individuals to live longer, healthier lives, reducing healthcare costs in the long run and contributing to a more robust workforce and a stronger economy.
13	Right to Food	Ensuring food security for all citizens prevents hunger, malnutrition, and social unrest. Access to nutritious food is fundamental to human health and development. A well-nourished population is healthier, more productive, and less prone to social unrest, benefiting society.
14	Right to Water	Access to clean water is critical for public health and hygiene. It reduces the spread of disease, promotes cleanliness, and leads to a healthier and more productive society.
15	Right to Social Security	Social safety nets protect vulnerable populations and promote social cohesion. They provide a safety net for those who cannot provide for themselves due to age, disability, or economic hardship, reducing poverty, inequality, and social unrest. This stability benefits everyone by creating a more just and equitable society.
16	Right to Equality and Freedom from Discrimination	An equitable society, free from discrimination, benefits everyone by promoting social cohesion and reducing conflict. When all individuals are treated fairly and have equal opportunities, regardless of their background, it fosters a sense of belonging, trust, and shared purpose. This reduces social tensions, promotes cooperation, and allows everyone to reach their full potential, benefiting society.
17	Access to Justice	A fair and accessible justice system is crucial for upholding the rule of law and ensuring fairness for all. It provides a system for peacefully resolving conflicts, holding individuals accountable for their acts, and protecting rights. This predictability and fairness benefit everyone by creating a stable and just society where individuals feel secure and businesses can thrive.
18	Public Participation in Governance	Citizen participation in decision-making processes leads to more responsive and accountable governance. When citizens have a voice in how they are governed, it fosters a sense of ownership and legitimacy, leading to better policies that reflect the needs and priorities of the community. This participatory governance benefits everyone by promoting transparency, accountability, and a government that works for the people.
19	Protection of Consumer Rights	Safeguarding consumer rights benefits everyone by promoting market competition and fairness. Protecting consumers from unfair or deceptive practices fosters trust in the marketplace, encourages businesses to compete on quality and price, and drives innovation. This benefits everyone by ensuring a wider choice of goods and services, fair pricing, and a more robust and dynamic economy.

 

Why might this constitutional perspective on public goods be significant in Kenya’s CoK 2010 Dispensation? 

By recognizing these rights, the Constitution of Kenya 2010 highlights the understanding that individual well-being is deeply intertwined with the well-being of society. These rights are not just individual benefits but contribute to a collective good. Including these rights in the Constitution signifies a collective decision by the Kenyan people to prioritize these goods and services as essential for the common good. This aligns with the theory’s emphasis on a constitutional level of agreement. The examples go beyond the traditional definition of public goods (non-excludable and non-rivalrous) to encompass broader societal goals like equality, justice, and cultural diversity. This demonstrates the flexibility of the Constitutional Theory to encompass a wider range of goods deemed essential for collective well-being. 

 

What is the definition of economics or constitutional theory of public goods? 

The economic definition of public goods centres on defining their characteristics and analyzing how to allocate them efficiently. Its strength lies in providing a clear, objective framework for identifying public goods based on the principles of non-rivalry and non-excludability. This framework and tools like the Samuelson Rule allow economists to determine theoretically optimal provision levels, promoting efficient resource allocation. However, this approach prioritizes efficiency, often overlooking crucial aspects of equity and fairness in distribution. It struggles to capture the subjective value individuals place on public goods and doesn’t fully address the real-world political processes and power dynamics that significantly influence public goods provision.  

In contrast, the Constitutional Theory of Public Goods focuses on understanding how societies collectively decide on and enshrine the provision of certain goods as essential for the common good. This approach acknowledges public goods’ inherently social and political dimensions, moving beyond purely economic considerations. It highlights the crucial role of collective decision-making, constitutions, and institutions in shaping public goods provision. It provides a broader, more nuanced perspective by emphasizing values, rights, and social consensus in determining essential goods. However, this approach lacks the clear-cut criteria of the economic definition, making it harder to classify public goods definitively. Its reliance on subjective interpretations can lead to disagreements about what constitutes a public good and may not offer precise guidance on optimal provision levels or resource allocation (Cowen, 1985).viii 

 

Conclusion 

While the traditional economic definition of public goods focuses on efficiency and market failures, the Constitutional Theory, exemplified by Kenya’s CoK 2010, offers a broader perspective. This approach recognizes that societal values, enshrined as rights in the Constitution, play a crucial role in determining what constitutes a public good. By guaranteeing rights like education and healthcare, the CoK 2010 moves beyond economic efficiency to prioritize equity, justice, and social well-being, recognizing the interconnectedness of individual and collective prosperity. Integrating economic and constitutional perspectives provides a more comprehensive framework for understanding and achieving a just and equitable society. 

 

References 

1. Marmolo, Elisabetta. “A constitutional theory of public goods.” Journal of Economic Behavior & Organization 38, no. 1 (1999): 27-42.
2. Kemboi, Leo Kipkogei. “Expanding Provision of Public Goods in Kenya: Economic Data.” Available at IEA Kenya(2022).
3. Ibid
4. Anomaly, Jonathan. “Public goods and government action.” Politics, Philosophy & Economics 14, no. 2 (2015): 109-128.
5.  Stiglitz, Joseph E. “The theory of local public goods.” In The Economics of Public Services: Proceedings of a Conference Held by the International Economic Association at Turin, Italy, pp. 274-333. London: Palgrave Macmillan UK, 1977.
6. Stantcheva , Stefanie . Lecture 8: Public Goods  . 2017.
7. Samuelson, Paul A. “The pure theory of public expenditure.” The review of economics and statistics (1954): 387-389.
8. Cowen, Tyler. “Public goods definitions and their institutional context: a critique of public goods theory.” Review of Social Economy 43, no. 1 (1985): 53-63.

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