entrepreneurship versus joblessness explaining the rise in self employment a large share of the workforce throughout the developing world is self employed and this proportion has increased in recent decades assessments of this development vary with pull factors such as high returns to capital contrasted with push factors such as barriers to more desirable salaried jobs using a long panel dataset from ghana we empirically investigate the changing structure of earnings in self employment relative to salaried work our analysis allows workers to sort into self employment for different reasons including expected earnings differentials and endogenous capital accumulation whilst highlighting constraints that workers may face we estimate a correlated random coefficient model using iv gmm taking into account the endogeneity of sector choice and capital accumulation we find that returns to productive characteristics in self employment have increased significantly between 2004 and 2011 whilst self employment has attracted increasingly skilled workers this points against the negative view of self employment as an occupation of last resort

effective rates of protection and the fordney mccumber and smoot hawley tariff acts this study presents the first calcualtions of effective rates of protection for 1920 1923 and the first and second half of 1930 for the united states economy disaggregated to 39 sectors the calculated changes in the effective on the united states economy of the emergency and fordney mccumber tariff acts of 1921 and 1922 and of the smooth hawley tariff act of 1930 the results suggest that the emergency and fordney mccumber tariff acts resulted in a much larger increase in the level of protection given to american industry than the smoot hawley tariff act further the results indicate that smoot hawley had a small effect on the level of protection

property rights and the utilisation of wetlands abstract this paper argues that successful conservation of wetlands is fundamentally determined by the institutions and property rights associated with resource management decisions thus an understanding of property rights regimes the constraints which they impose on users of wetlands resources and the distribution of benefits of use among users and non users are essential if the economic values of wetland ecosystems and functions are to be realised we outline relevant theoretical perspectives on property rights and the sustainable utilisation of natural resources we argue that wetland resources tend to have unique property rights regimes due to their ecological characteristics namely their multiple resource characteristics the indivisible nature of these resources and the seasonal and cyclical nature of different wetland resource components case studies of property rights regimes in indonesia and vietnam are presented these show that wetland resources are often managed as common pool resources and that state appropriation of resources or the imposition of private property rights can contribute to unsustainable utilisation or conversion of wetlands to other uses

the ambiguous impact of inequality on local resource management abstract the impact of inequality on the ability of human groups to undertake successful collective action is investigated with special reference to overexploitation of common property resources in voluntary provision problems on the one hand inequality has an ambiguous impact on the feasibility of the efficient outcome even though better endowed agents contribute more to collective action in regulated settings on the other hand inequality tends to reduce the acceptability of available regulatory schemes and therefore to make collective action more difficult

institutions governance and incentives in common property regimes for african rangelands the general distinctions between open access state property common property and private property are now well established in the academic literature when applied to african rangelands however common property admits a wide variety of resource management regimes to formulate effective policies it is necessary to understand the structure and operations of particular regimes in this paper we discuss three examples of common property regimes two from the southern african nation of lesotho and one from the west african nation of senegal to illustrate some of the key characteristics of common property regimes in particular it is important to understand the structure of governance the types of institutions that govern behavior and the compatibility between governance institutions and individual incentives a common property regime can only be effective if its institutions are compatible with the structure of governance the extent of its effectiveness also depends upon the incentives and expectations of individuals expected to enforce the rules of the institutions or comply with their terms at present most african governments lack the organizational capacity and political will necessary to implement state property regimes official regulations on resource use or individual property rights for rangelands resources in many cases it is more appropriate for governments to define and enforce group rights to particular resources then help to establish conditions in which internal group dynamics yield efficient resource management outcomes

the growth potential of startups over the business cycle this paper shows that employment in cohorts of us firms is strongly influenced by aggregate conditions at the time of their entry employment fluctuations of startups are procyclical they persist into later years and cohort level employment variations are largely driven by differences in firm size rather than the number of firms an estimated general equilibrium firm dynamics model reveals that aggregate conditions at birth rather than post entry choices drive the majority of cohort level employment variation by affecting the share of startups with high growth potential in the aggregate changes in startup conditions result in large slow moving fluctuations in employment

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

fettered to gold economic policy in the interwar period for at least three reasons first it is fun a skillful narrator and analyst can bring alive exciting or important events and that is enjoyable second a study of history alerts economists to two important but usually neglected characteristics of economies namely that they are sometimes strongly influenced by noneconomic factors not only wars but political impasses charismatic leaders or ideological beliefs deeply rooted in public or official psychology and that contrary to what is usually assumed in formal modeling the structure of economies changes over time as public attitudes change and as institutions evolve third economists should study history at least relatively recent history because it is usually impossible to understand our institutions and attitudes without some appreciation of the events that shaped the legacy from our parents and grandparents barry eichengreen has written a book that is likely for some time to become the standard reference on monetary and financial developments during the interwar period 1919 1936 it is traditional history telling a story or rather a series of stories with more tables and charts and a stronger reliance on economic concepts than most histories but little econometrics and no formal modeling the interwar period which contains what is still the most dramatic and traumatic economic event of the past century the great depression left a strong imprint on contemporary american european and world institutions and attitudes such as the securities and exchange commission the glass steagall act requring the separation of banking from other activities and the international monetary fund in addition to telling an interesting story eichengreen helps us interpret those events in ways that may have lessons for the future as well eichengreen s most significant conclusion is that the great depression was due to attempts to adhere to a restored gold standard with inadequate international cooperation to make it work that flawed behavior in turn must be understood in light of experience in the early 1920s especially in three critical countries france germany and the united states as the interwar period may not be well known to most readers of this journal i first sketch the main economic and political events the next section indicates the influence of these events on post world war ii international institutions and behavior i turn then to the various explanations that have been put forward for the severity of the great depression and conclude with a commentary on eichengreen s contribution to this literature and to our understanding of the interwar period more generally

tariffs and aggregate economic activity lessons from the great depression abstract we argue against the prevailing view that the macroeconomic role of tariffs during the great depression was small to understand the economic channels through which tariffs could have large effects we build a multi sector dynamic equilibrium trade model that captures key features of trade in the 1930s a substantial share of trade was in material inputs and the persistence of the tariff increases had the potential for significant effects on capital accumulation both of these features are important in generating the conclusion that even when trade only represents a small share of output tariffs can have a significant impact on gdp simulation of the model suggests that the global escalation of the tariff war precipitated the collapse of world trade along with declines of several percent in international output and investment

financial factors in the great depression eginning with irving fisher 1933 and john maynard keynes 1931 b 1963 macroeconomists have argued that financial markets were important sources and propagators of decline during the great depression turning points during the depression often coincided with or were preceded by dramatic events in financial markets stock market collapse waves of bankruptcy and bank failure and contractions in the money stock but the mechanism through which financial factors contributed to the depression has been a source of controversy as has been the relative importance of financial factors in explaining the origins and persistence of the depression this essay reviews the literature on the role of financial factors in the depression and draws some lessons that have more general relevance for the study of the depression and for macroeconomics i argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial real links in the depression followed a paradigm shift in economics a central neglected theoretical piece of the story for financial factors was the allocative effects of imperfections in capital markets which can imply links between disruptions in financial markets and subsequent economic activity also the increasing emphasis on learning and path dependence in economics has helped to explain why financial shocks during the 1930s were so severe and why policy makers failed to prevent the depression

traditional production communal land tenure and policies for environmental preservation in the south pacific abstract instead of maximizing the expected monetary return of land usage pacific islanders manage land so that it renders an optimal mix of cash income and non monetary cultural goods evidence from cropping patterns in fiji suggests that the production of these cultural goods is linked to traditional agriculture which produces less ecological deterioration than its commercial counterpart the capacity for village land to support traditional activities is highest under a regime of communal land tenure where decision making is centralized a regime of private land tenure lowers this capacity because decentralized decision making raises the coordination costs of preserving special areas of land for traditional purposes this means that if development planners rush to replace traditional regimes of communal land tenure with modern systems of private land ownership they might also observe a correlated increase in land degradation even if new codes of private property are perfectly enforceable a two sector growth model can be used to show that the welfare neutral bribe required from the government to increase the amount of village land preserved in the steady state is lower under a regime of communal land tenure one counterintuitive result is that a high subjective discount rate does not always imply a high level of environmental degradation observations from the south pacific have application for environmental policy in other developing countries

where has all the skewness gone the decline in high growth young firms in the u s abstract the pace of business dynamism and entrepreneurship in the u s has declined over recent decades we show that the character of that decline changed around 2000 since 2000 the decline in dynamism and entrepreneurship has been accompanied by a decline in high growth young firms prior research has shown that the sustained contribution of business startups to job creation stems from a relatively small fraction of high growth young firms the presence of these high growth young firms contributes to a highly positively skewed firm growth rate distribution in 1999 a firm at the 90th percentile of the employment growth rate distribution grew about 31 percent faster than the median firm moreover the 90 50 differential was 16 percent larger than the 50 10 differential reflecting the positive skewness of the employment growth rate distribution we show that the shape of the firm employment growth distribution changes substantially in the post 2000 period by 2007 the 90 50 differential was only 4 percent larger than the 50 10 and it continued to exhibit a trend decline through 2011 the overall decline reflects a sharp drop in the 90th percentile of the growth rate distribution accounted for by the declining share of young firms and the declining propensity for young firms to be high growth firms

the smoot hawley tariff a quantitative assessment in the two years after the imposition of the smoot hawley tariff in june 1930 the volume of u s imports fell over 40 to what extent can this collapse of trade be attributed to the tariff itself versus other factors such as declining income or foreign retaliation partial and general equilibrium assessments indicate that the smoot hawley tariff itself reduced imports by 4 8 ceteris paribus although the combination of specific duties and deflation further raised the effective tariff and reduced imports an additional 8 10 a counterfactual simulation suggests that nearly a quarter of the observed 40 decline in imports can be attributed to the rise in the effective tariff i e smoot hawley plus deflation

employment effects of financial constraints during the great recession abstract employment declined substantially during the 2007 2009 recession especially in small and young firms using confidential firm level data of the universe of firms and a difference in differences methodology this paper estimates that financial constraints reduced employment growth by 4 to 8 percentage points in small firms relative to large firms and by 7 to 9 percentage points in young relative to old firms i find that the effect of financial constraints on small firms is driven to a large extent by young firms i then document that financial constraints affected employment growth in small and young firms strongly through the entry and exit of firms

trade barriers and the collapse of world trade during the great depression 1 introduction the contraction in world trade during the first phase of the great depression stands out as the strongest adverse shock to international trade in modern history from 1929 to 1932 world import and export volume in the industrialized nations decreased about 30 however it is not well understood which factors were responsible for the collapse the factors that have been highlighted in the literature are declining demand escalating tariff and nontariff trade barriers increasing bilateral trade agreements and international exchange rate policies the importance attributed to each of these factors has often been controversial pollard 1962 p 200 for instance argues that for britain the fall in total foreign trade as a proportion of home production was a part of a secular trend and may well not have been caused by the tariff as such by contrast khan 1946 p 246 claims that within 12 to 18 months uk nominal imports of manufactures from most of europe and the united states were reduced by something like 60 as a result of the tariff similarly saint etienne 1984 p 29 argues that by the mid 1930 s international trade had become in large proportion barter trade as a result of the tariffs and nontariff barriers empirical studies have examined the effects of trade restrictions on incomes to explain the declining trade for individual countries the studies of crucini and kahn 1996 and irwin 1998 find that the tariffs were influential for the u s imports and exports in his study of nominal imports to the european countries friedman 1974 quantified the effects of trade barriers on nominal imports and ultimately income by means of dummies in periods of significant tariffs and nontariff barriers he found that trade restrictions had a significant impact on trade in a few countries however as friedman himself acknowledges the weakness of this approach is that strong and weak forms of trade barriers are restricted to impact equally on imports in the estimates coupled with the small sample problems that plagued his estimates the trade barrier dummies were unlikely to effectively have captured the effects of trade barriers on imports which explains substantial variations of the estimated effects of the tariffs and the nontariff barriers across countries the study of eichengreen and irwin 1995 is probably the most extensive analysis of trade flows in the interwar period using 561 cross sectional bilateral trade flows over three periods 1928 1935 and 1938 they estimate a gravity model of trade patterns they relate the value of bilateral flows to national income population distance contiguity trade and currency block indicators and exchange rate variability to examine the effects on trade of trade and currency blocks and exchange rate variability they observe a declining marginal propensity to import and export during the depression which they attribute to quotas and other binding trade restrictions but do not formally test their importance this paper seeks to estimate the contribution of income tariffs and nontariff barriers on world trade during the depression using panel data for 17 countries over the period from 1920 to 1938 the panel data approach enables the assessment of the influence on trade of nontariff barriers from estimates of import and export functions by using as an identifying assumption that the nontariff barriers were to some degree simultaneously imposed and relaxed across the industrialized nations during the interwar period the estimates and extensive evidence from the literature suggest that this identifying assumption is valid section 3 in section 4 the changes in world trade in the interwar period are decomposed into income effects tariff effects and nontariff barrier effects the trade effects of the tariff changes are furthermore decomposed into deflation inflation induced tariff changes and discretionary tariff induced changes

effective rates of protection and the fordney mccumber and smoot hawley tariff acts comment and revised estimates this paper provides corrected calculations of the effective rate of protection for a wide disaggregation of us industries under the two important interwar tariff regimes

golden fetters the gold standard and the great depression barry eichengreen oxford university press new york 1992 pp xix 448 39 95

the nation in depression t he economic cataclysm of the 1930s was an international phenomenon experienced by countries in all parts of the globe countries as diverse as the united states germany chile and japan all experienced significant depressions in the 1930s thus the title of charles kindleberger s classic book the world in depression 1973 captures an important feature of the great depression these international aspects especially the importance of the gold standard in causing the downturn and transmitting depression from one country to another have been emphasized in recent years in excellent books by peter temin 1989 and barry eichengreen 1992 these books have rightly received widespread attention and have successfully changed the focus of much analysis of the great depression from the united states to the world economy while such a change from american provincialism is surely healthy and warranted adopting an international perspective on the great depression risks losing sight of the many ways in which the u s depression differed in timing and severity from depressions elsewhere more important it may obscure the many uniquely american causes of america s great depression this paper examines the ways in which the u s experience during the 1930s resembled that of other countries in some regards and fundamentally differed in other aspects i also evaluate the evidence on the causes of the great depression in the united states and the sources of the eventual recovery i suggest that the path of american output and unemployment before 1931 can be explained quite well with only domestic factors even after 1931

employers discriminatory behavior and the estimation of wage discrimination this paper considers the linkage of empirical estimates of wage discrimination between two groups introduced by oaxaca 1973 to a theoretical model of employers discriminatory behavior it is shown that conditional on different assumptions about employers discriminatory tastes oaxaca s estimators of wage discrimination can be derived that the approach is more generally useful is demonstrated by deriving an alternative estimator of wage discrimination based on the assumption that within each type of labor e g unskilled skilled the utility function capturing employers discriminatory tastes is homogeneous of degree zero with respect to labor inputs from each of the two groups the estimators are compared empirically in an application to male female wage differentials

explaining international variations in self employment evidence from a panel of oecd countries organisation for economic cooperation and development oecd data from 1972 to 1996 reveals substantial differences in the levels and trends of self employment rates across countries this article uses recently developed panel integration and cointegration techniques to explore the determinants of aggregate self employment rates we find that within the panel self employment rates are positively and significantly related to personal income tax rates and negatively and significantly related to the unemployment benefit replacement rate this accords a central role to government tax and transfer policies in contrast to nonrobust influences from macroeconomic variables which have been widely used in previous studies

entry and exit of manufacturing plants over the business cycle abstract this paper analyzes the plant level entry and exit over the business cycle we document basic patterns of entry and exit of u s manufacturing plants between 1972 and 1997 we find that the entry rate is more cyclical than the exit rate we also find that the differences in productivity and employment between booms and recessions are particularly larger for entering plants than for exiting plants our new finding suggests that the selection at the entry margin may be more important than the selection at the exit margin in understanding the plant level dynamics over the business cycle

the structure of a contract and the theory of a non exclusive resource the process of arriving at a useful concept of analysis is not only slow and painful but also may go astray and attain nothing useful someone begins with one example or observation followed by a theory which is intuitively plausible a theoretical term associated with a vague concept is coined examples of a seemingly different type emerge which call for another theory the process goes on as examples and theories continue to accumulate the different categories under the same heading of analysis serve only to confuse and each associated theory becomes ad hoc such has been the fate of the concept of externality a more useful approach i think is via contractual conditions the example chosen for illustration is marine fisheries where the fishing right is taken

the great crash and the onset of the great depression this paper argues that the collapse of stock prices in october 1929 generated temporary uncertainty about future income which led consumers to forgo purchases of durable goods that the great crash generated uncertainty is evidenced by the decline in surety expressed by contemporary forecasters that this uncertainty affected consumer behavior is shown by the fact that spending on consumer durables declined drastically in late 1929 while spending on perishable goods rose slightly this effect is confirmed by the fact that there is a significant negative relationship between stock market variability and the production of consumer durables in the prewar era

common property and collective action in economic development abstract a fundamental issue in many ldcs is the degree to which natural resource mismanagement is caused by common property arrangements this view has led to widespread attempts to privatize forests rangelands and water resources many of these efforts have failed to stop overuse and have contributed to inequality in resource distribution this paper seriously questions this approach and describes a number of reasons why common property may continue to be both efficient and equitable complementing and combining with private rights in a way consistent with the resource endowments of village economies a theoretical approach is outlined showing that the tragedy of the commons is an unsatisfactory model of common property an alternative model is presented together with a call for research into institutional alternatives in resource management

the economics of cain and abel agro pastoral property rights in the sahel the complementarity of the economic systems of nomads and farmers is often overshadowed by the conflicts inherent in the competition over the control of land the conflict is one of property rights a dynamic programming model of the west african sahel is presented that simulates the emergence of a dual economy based on the comparative advantage of the farmer and the pastoralist the model illustrates that exclusive private property rights have no claim to optimality the analysis of risk in an intertemporal framework suggests the optimality of another type of property right the right to flexible adjustment typically claimed by the pastoralist multiple property regimes provide optimal settings for farmers and pastoralists

self employment over the business cycle in the usa a decomposition entry rates into self employment increase during recessions and decrease during economic upswings i show that this is mostly explained by the higher unemployment rate during a recession together with the fact that at all times unemployed persons have a relatively high propensity to become self employed out of necessity i use econometric decomposition techniques to quantify these effects based on the monthly matched us current population survey before during and after the great recession i also document that the entry rate into self employment with unincorporated businesses strongly increased during the recession but not into self employment with incorporated businesses this highlights the association of unincorporated and incorporated self employment with necessity and opportunity entrepreneurship respectively the results are useful for policymakers and practitioners to understand forecast and act on the different types of self employment that can be expected over the business cycle there are also important implications for theories of the cyclicality of unemployment and entrepreneurship plain english summary self employment will increase during recessions when unemployment is high but it may not boost innovation during recessions increased unemployment underlies the higher entry rate into self employment our evidence is from representative survey data from the usa covering the great recession the upside is that self employment enables workers who lose their jobs to continue to work which can speed up the subsequent economic recovery thus public policy should enable people to start businesses however as during recessions the unemployed mostly start unincorporated businesses one cannot expect them to boost innovation as much as start ups during better economic times these insights also speak to the 2020 recession triggered by covid 19 if unemployment remains high after the relaxation of the lockdowns a rise can be expected especially in non innovative self employment thus the principal policy implication of this study is that policymakers should ensure that their expectations for new businesses started during deep recessions are realistic for the circumstances

property relations and economic development the other land reform abstract continued concern for development has led to the suggestion that private property rights should be created to stimulate economic development this suggestion derives from an incomplete understanding of the property relations on the public domain lands in the arid tropics and from a confusion of cause and effect between property and economic productivity a model of the private public boundary in land is developed that challenges the view that wealth would increase if land at the extensive margin were privatized the various types of property regimes in land are defined and explained

entrepreneurial talent occupational choice and trickle up policies we study market inefficiencies and policy remedies when agents choose their occupations and entrepreneurial talent is subject to private information untalented entrepreneurs depress the returns to entrepreneurship because of adverse selection the severity of this problem depends on the outside option of entrepreneurs which is working for wages this links credit product and labor markets a rise in wages reduces the adverse selection problem these multimarket interactions amplify productivity shocks and may generate multiple equilibria if it is impossible to screen entrepreneurs then all agents unanimously support a tax on entrepreneurs that drives out the less talented ones however if screening is possible e g if wealthy entrepreneurs can provide collateral for their loans then wealthy entrepreneurs do not support surplus enhancing taxes

contracting problems and regulation the case of the fishery the inefficiencies of common property fisheries are of continuing concern to economists the early work by scott gordon 1954 and anthony scott 1955 outlined the problem and later studies by james crutchfield and giulio pontecorvo 1969 and frederick bell 1972 provided empirical estimates of the losses that result those studies were followed by the dynamic models of colin clark 1976 and james quirk and vernon smith 1970 of optimal harvest rates and the use of corrective taxes or quotas to achieve them but in spite of a large and growing literature and the persuasiveness of the outlined efficiency criteria most fisheries retain common property aspects with overcapitalization and excessive labor input why those conditions persist and the failure of the regulatory response to them are the issues addressed in this paper we examine a number of fisheries but focus on the texas shrimp industry which is one of the nation s most valuable fisheries for a single species and which shares the common property characteristics observed elsewhere it is considered overcapitalized and catch per unit of effort is falling 2 examination of the fishery reveals the many margins along which rent dissipation occurs and the nature of the regulations necessary for controlling fishing effort to avoid those losses the regulatory environment in texas is complicated by conflict within the fishery between inshore and offshore fishermen the latter assert that bay shrimping reduces the number of shrimp that successfully migrate to the gulf the inshore fishery is highlighted by another issue the recent resettlement of some 30 45 000 vietnamese refugees including many fishermen along the texas coast marine advisory service paul starr their entry has been met by hostility and violence from existing shrimpers who recognize that they are in an environment characterized by the absence of property rights bay shrimpers have lobbied the texas legislature for broad limits on new entrants yet ironically the sale of additional boats by individual shrimpers to the vietnamese has facilitated entry of the refugees into the fishery regulations in the texas shrimp and other fisheries are incomplete leaving many options for rent dissipation uncontrolled because of high contracting costs among fishermen and political factors that mold government actions contracting costs are high among heterogeneous fishermen who vary principally with regard to fishing skill 3 montana state university and texas a m university respectively we benefitted from comments by terry anderson raymond c battalio gardner brown oscar burt micha gisser wade griffin john r moroney anthony d scott peter temin and participants in workshops at texas a m university and the university of washington research assistance was provided by scott barnhart and phil mizzi funding was provided by sea grant texas a m university throughout this paper we use the terms common property and open access interchangeably here the terms describe a situation where no property rights group or individual exist s for the resource 2catch per unit of effort in the inshore texas gulf and federal gulf waters is presented for 1963 77 by w l griffin c g tydlacka and w e grant they show catch per unit of effort generally falling in inshore and offshore waters while catch per unit of effort fluctuates from year to year it falls from approximately 360 kg shrimp per unit of effort to 220 kg from 1963 to 1977 the common property nature of the fishery is reflected in the following statistics since 1975 the number of vessels has grown by 23 percent nelson swartz for fish houses the record of entry is similar between 1970 a d 1977 the number of firms grew from 259 to 287 though during that period many left the industry as others entered the number of fish houses was calculated from license data supplied by the texas parks and wildlife department the record of entry by fish houses suggests that monopsony as discussed by colin clark and gordon munro is absent in the fishery 3there may be minor differences in labor leisure choices and capital but our statistical evidence and discussions with fishermen indicate that catch variations are largely due to skill government regulations in the texas bays restrict capital and our empirical evidence shows boats to be relatively homogeneous

on the economics of philanthropy friedman says that he accepts this argument as justifying governmental action to alleviate poverty economists will be familiar with this kind of argument someone takes as a premise that a particular activity is the subject of altruistic concern by individuals he shows that if matters are left to unco ordinated private philanthropy a free rider problem will arise and then he claims that this problem can be solved by some kind of intervention by government this strategy has been used to justify many kinds of intervention including compulsory transfers of income through the tax system hochman and rodgers i969 public policy to stimulate saving and investment marglin i963 sen i967 and the subsidisation or public provision of health care arrow i963 lindsay i969 culyer i976 this whole line of argument rests on a particular theory of private philanthropy which in turn relies on three principal assumptions first there is the publicness assumption the charitable activity in question say the relief of poverty or the provision of health care is a common argument in many individuals utility functions and so is a public good in the theoretical sense samuelson i954 in some cases of private philanthropy it is indisputable that the charitable activity is a public good from which donors derive utility consider for example the case of yachtsmen contributing to the royal national lifeboat institution or potential cancer victims contributing to the cancer research campaign in other cases the assumption takes on a rather different character rich britons contribute towards famine relief in cambodia childless old age pensioners contribute towards the care of handicapped children in such cases one would have to be extremely cynical to believe that the charitable activity furthers the self interest of the donor in any significant way but one might suggest that for purely altruistic reasons the donor derives utility from knowing that less fortunate people are being made better off such an effect will be called an altruistic externality friedman along with all of the other writers quoted in the first paragraph of this paper relies on altruistic externalities to justify the publicness assumption the second assumption is that of utility maximisation each individual s decisions concerning his philanthropic