1. Introduction The main aim of this study is to learn more about public sector orga- nizations and problems in very small countries. Very small countries, as a unit of observation and analysis, have largely been neglected in econo- mics during the last decades. Standard economic theory is even biased towards considering very small countries as «inferior» to larger ones, es- pecially due to a small home market and diseconomies of scale in the production of private goods and in the provision of public goods. Furthermore, empirical assessments of very small countries have been rare because of severe data constraints and problems associated with comparability in a highly diverse world of very small countries. It is there fore not astonishing that economic theory and empirical investiga- tions hardly can account for the surprising economic prosperity in some of the very small countries and for the steadily growing number of small and very small countries in the world. Both phenomena cannot be ex- plained by economic concepts alone, but we will argue and show that there is no doubt that economics and economic policy may help to achieve a better understanding of these developments. Note further that the theoretical «inferiority» of very small countries and the growing number of them are clearly contradictory, and some of the questions concerning this contradiction have to be raised and will be analyzed in the course of this study. Our focus is on the public sector peculiarities of very small coun- tries, but we do not neglect the interactions between the public and the private sector, which seem to be one of the promising sources for ex- plaining some very small country peculiarities. A first starting point for this study was the fact that public econo- mics has largely ignored the very small country issue. Most theoretical approaches in public economics do not account for size, and the (impli- cit) analytic basis in public economics is, at least, an middle-sized coun- 11