a club good is: (1) non-excludable for club members but excludable for outsiders, (2) possibly (but not necessarily) non-rivalrous for those with access, (3) subject to collective decision-making costs, but within a voluntary close-knit group that can exclude free riders, and (4) voluntarily produced if high decision making costs do not prevent it. http://garnet.acns.fsu.edu/~bbenson/hywys.doc
Bacaria, J. (2004) “BUCHANAN (club’s theory)” in An Eponymous Dictionary of Economics (A Guide to Laws and Theorems Named after Economists), by Segura, J. y Rodriguez Braun, C. (Eds.), Edward Elgar, Chentelham U.K., Northampton, M.A., USA.
BUCHANAN (club’s theory)
The theory of clubs is part of the theory of impure public goods. When James M. Buchanan wrote his seminal piece, “An Economic Theory of Clubs” (1965), the theory of public goods was barely developed, and he was able to fill the Samuelsonian gap between private and pure public goods. Buchanan demonstrated how the conditions of both public good provision and club membership interact.
A club good is a particular case of public good, which has the characteristics of excludability and non-rivalry (or partial non-rivalry depending on the congestion). By contrast, a pure public good has the characteristic of both, non-excludability and non-rivalry.
Therefore a club is a voluntary group of individuals deriving mutual benefit from sharing either the cost of production or the member’s characteristics or an impure public good. A club good is characterized by excludable benefits. The fundamental characteristic of the club is its voluntary membership. Its members take the decision to belong to the club because they anticipate the benefits of the collective provision from membership.
For this reason, a club good is excludable and this is its main characteristic, because without exclusion there would be no incentives to belong to the club and pay fees or rights to enter. Therefore, in contrast to pure public goods, it is possible to prevent its consumption by the people that will not pay for it. However the club good keeps the characteristic of non-rivalry, that is, the consumption of the good by one person does not reduce the consumption of the same good by others, except when congestion happens and the utility of any individual will be affected by the presence of more members of the club. Rivalry and congestion increase when the number of individuals sharing the same club good increases too. Buchanan’s analysis includes the club-size variable for each and every good, which measures the number of persons who are to join in the consumption arrangements for the club good over the relevant time period. The swimming pool is the original example of a club good in Buchanan’s article. The users that share a swimming pool suffer rivalry and congestion when the number of members increases.
Another pioneering club model is that of Charles Tiebout (1956) whose ‘voting-with-the-feet’ hypothesis attempted to show how the jurisdictional size of local governments could be determined by voluntary mobility decisions. In this model, the amount of the shared local public good is fixed and distinct for each governmental jurisdiction and the decentralized decision mechanism allows achieving Pareto optimality for local public goods.
Most of the articles analysing the theory of club goods have been written after Buchanan’s seminal article however the grounds of the theory have been traced by A.C. Pigou (1920) and Frank Knight (1924), applied to the case of tolls for congested roads.
REFERENCES
Buchanan, James M. (1965), ‘An Economic Theory of Clubs’, Economica, 32, 1-14.
Tiebout, Charles M. (1956), ‘A Pure Theory of Local Expenditures’, Journal of Political Economy, 64, 416-24.
Professor Jordi Bacaria. Universitat Autonoma de Barcelona.
http://selene.uab.es/jbacaria/Economia_Aplicada/club.doc
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