Volltext: Very small countries: economic success against all odds

To summarize this first argument, non-rival public goods clearly ex- hibit diseconomies of scale in their production, which obviously leads to disadvantages for smaller countries, caused by higher public expenditure than in larger countries relative to GDP. Nevertheless, the cost disadvantage should decline, when we take into considera- tion that many public goods can be provided by means of «interna- tional outsourcing». Regarding the development of regional and in- ternational cooperation and integration within the last decades, a steady decline of the disadvantages of smaller countries due to dis- economies of scale should be observable. –The above-mentioned possibility of a free ride can easily be under- pinned by game theory. The argument may be traced back to Olson (1965) and has already been mentioned in Section The group member with the largest portion of the group gain in a non-unitary group will probably provide the public good (depending of course on benefits and costs for him) and cannot exclude smaller members from its consumption.37Thus, in the language of game theory, the strategy-pair defection by small countries and cooperation by larger ones may be a Nash equilibrium. –Another argument in favor of a greater feasibility of being small is that the evidence simply suggests it. There are currently 193 coun- tries in the world, of which 54 have under two million inhabitants; 34 countries have fewer than 500,000 residents. The dynamics of the process are even more impressive. In 1914 there were only 62 sovereign states on the entire globe; at the end of the second world war the number increased to 74.38Thus, within less than a hundred years the number of independent countries more than tripled, a deve lopment which has surely not reached its limit yet. There are separation movements almost everywhere in the world. Think of Scot land, the Kosovo, Quebec, Chechnya and East Timor, to name 43 
Public sector size and country size in theory 37Think, for instance, of measures against global warming. If the United States had de- cided to significantly reduce carbon dioxide emissions, all other countries could not have been excluded from the advantages, even if they had not decided to contribute. In a similar vein, the small countries in NATO were able to exploit the U.S.A. by contributing relatively little for their security during the cold war. 38See The Economist,Jan. 3rd, 1998, p. 63f.


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