Distinguished Speaker Seminar: Todd Sandler - Regional Public Goods, Aid, and Development

Todd Sandler, the Vibhooti Shukla Professor of Economics and Political Economy at the University of Texas, gave a seminar on Regional Public Goods (RPGs) for Regional Economic Development at ADBI. His paper aimed to apply modern analysis of public goods and collective action to assess the effectiveness of the support for RPGs, as well as analyze the role of institutions and other participants in funding RPGs.

RPGs provide benefits to two or more nations in a well-defined region. The basis for defining a region may be geological, political, geographical, cultural or meteorological. RPGs have the following public good characteristics: nonrivalry of benefits, nonexcludability of benefit recipients, and use of an aggregation technology. The aggregation technologies are: summation (i.e., overall level of public goods equals the sum of countries' or donors' contribution; weighted sum (i.e., overall level of public good equals a weighted sum of countries' contribution); weakest link (i.e., smallest provision level determines the public good's aggregate level; threshold (i.e., benefits from the public good only arise once the level of the good supasses a threshold; and best shot (i.e., largest provision determines the public good's aggregate level). Based on these characteristics, Sandler developed a taxonomy of RPGs and assessed whether they are adequate or inadequately provided. An example of a regional public good with nonrival and nonexcludable benefits using the summation aggregator technology is cleansing an ecosystem. In his assessment, this RPG is undersupplied. Curbing a spread of a pest is an example of regional public good with nonrival and nonexcludable benefits using the weighted sum aggregation technology. He pointed out that sectors such as health, environment, knowledge, governance, peace and security, and infrastructure may confront different RPG policy concerns because they may be associated with different public goods characteristics.

Sandler noted that globalization and regionalization are associated with increased cross-border flows that include goods, services, financial capital, labor, and benefit spillovers from public goods. Particularly, regarding spillovers, borders are porous to pollutants, diseases, crime, terrorists, drugs, discoveries, best practices, revolutionary rhetoric, and financial crises. Also, the aggregation technology is critical to the form of policy intervention as well as the most appropriate donor for RPG assistance.

Regional development banks and regional trade pacts play a pivotal role in coordinating donors and fostering the supply of RPGs necessary for development. These regional institutions are important not only in directing collective action for RPGs, but also in prompting efforts to finance RPGs, whose benefits affect a well-defined group of developing nations. In addition, new aid participants - networks, nongovernmental organizations, public-private partnerships, and charitable foundations - are essential supporters of RPGs in some sectors, especially in funding RPGs that provide no spillovers to donor countries. Such efforts lead to the provision of social overhead capital needed for sustained development.

Finally, Sandler stated that RPGs are complementary to national public goods (NPGs) and are necessary for developing countries to achieve sufficient economies of scale to compete internationally. Yet, RPGs are shown to confront more difficult funding problems than NPGs and global public goods (GPGs). Such situation therefore underscores the need to support RPGs that are vital for regional growth and development.