The Strategy of Global Public Goods

Jonathan Morduch and Akihiko Matsui
Presented at NYU Conference on Foreign Aid and Northeast University Development Consortium, Yale University. December 2003.

Increasingly international institutions like the United Nations and the World Bank are redefining their missions in terms of global public goods provision. Global public goods have benefits that spill across national borders, and priorities include constructing financial architecture, generating and spreading knowledge, peace-keeping, containing disease, and cleaning up the environment. The rhetoric of global public goods underscores the notion that sending foreign aid overseas can deliver benefits at home as well. As in standard analyses of public goods, under-supply can occur due to free-riding, and public action can improve eficiency. But other cases depart from the standard analysis. We consider cases in which the content of global public goods may be controversial, and where welfare may be a function of multiple public goods consumed simultaneously. In this setting, free-riding may be encouraged and strategic policymakers may choose the quality of public goods to either "crowd out" or "crowd in" the provision of other public goods. The formal analysis is illustrated with discussion of two recent initiatives to provide global public goods: the failed proposal to start an Asian Monetary Fund in 1997 and the World Bank's announcement in 1996 that it is becoming a "Knowledge Bank" that spreads information on international development policy.

Wagner Faculty