Comparing the First-Best and Second-Best Provision of a Club Good: An Example0

Excludable and congestible shared goods club goods (e.g., internet access facilities) are more prevalent than Samuelsonian public goods. We construct an example to show that the optimal second-best provision level of a club good might exceed its ̄rst-best level. This is unlike the usual presumption with pure public goods. We argue that our ̄nding arises because user charges can be levied on club goods; the government need not impose distortionary taxes on other goods to ̄nance them. Thus, the only practical di®erence between the ̄rst and second best in a club economy is that informational constraints prevent the government achieving the right distribution of income in the latter. JEL Classi ̄cation: 022, 024 (Preliminary; not be be quoted directly without permission.)