Liechtenstein Politische Schriften
try. Elementary schools, transfer payments, police, etc. are general- ly provided on the lowest or – if existent – an intermediate jurisdic- tional level in large as well as in small countries. Concerning econo- mies of scale per capita, expenditure for those goods should not be systematically dependent on country size. Moreover, these goods may be even more costly in larger countries with large agglomera - tions because of negative external effects associated with congestion phenomena.35Therefore, the argument has to be restricted to non- rival public goods, such as for example legal systems, external secu- rity, governments or monetary systems. It is astonishing that a lot of these almost or entirely non-rival pub - lic goods are not produced by small countries, which does not mean that they are not provided. Take Liechtenstein, for example, a very small but nevertheless prosperous country. Liechtenstein does not «produce» an army or a monetary system and does not provide uni- versities of its own. Important parts of its fiscal, social and legal system do not originate in the country. Liechtenstein leaves the pro- duction of public goods to its neighbors and restricts itself to gua- ranteeing provision through mostly advantageous contracts and treaties or simply free rides. The former is sometimes referred to as «international outsourcing», which elegantly grasps the main idea (see Gantner and Eibl, 1999); we will henceforth stick to this termi- nology and analyze international outsourcing thoroughly in Chapter 4. The negative connotations the term «free ride» do often not apply to VSC, since the marginal costs caused by the popula tion of the VSC are close to zero in many cases and therefore negligible for large countries.36It is possible that marginal costs are even nega - tive in special cases. The similarity between certain laws concern ing the financial sector in Switzerland and Liechtenstein, which is the result of Liechtenstein adopting Swiss legislation, might be viewed as providing some advantages for Switzerland or Swiss citizens with out extra costs. 42Does 
country size matter for public sector size? 35Alesina and Wacziarg (1998) control for congestions in their regressions through pop ulation density, which seems to be a very rough measure on the country level, be- cause the impact of congestions, intuitively, depends more on the existence of conur- bations or big centers. 36The marginal costs of providing security to the Monegasque by the French army seems to be sufficiently close to zero (at least in peacetimes) to be neglected by the latter.


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