Volltext: Very small countries: economic success against all odds

scale are a major determinant of the size disadvantage, a theoretical framework of organizational choice of the provision of public goods is developed. The main idea is to take borderline cases with regard to two characteristics in order to be able to learn more about how the provision of public goods is organized in a difficult environment. These two cha- racteristics are country size – we take only very small countries, where the negative size effect is expected to be most pronounced – and the ex- tent of diseconomies of scale – we analyze the provision of public goods, which are associated with (very) high levels of economies of scale. We hence would expect VSC to have considerable problems in providing these public goods, and we are, therefore, interested in how they pro vide these goods. Of course, the basic question is whether VSC provide these goods at all. A comprehensive theory of organizational choice in the provision of public goods is beyond the scope of this study. Such a theory is, moreover, not really necessary for the question underlying Chapter 4. Since we focus on publicly provided goods with a considerable level of economies of scale, hence a high degree of publicness, outsourcing to private agents as organizational choice is, e.g., very unlikely. Strictly speak ing, there are only three main possibilities for VSC to cope with the size disadvantage in the provision of those goods: VSC can, first, simply abstain from providing such goods (which theoretically might re- sult in lower happiness or utility of citizens); second, provide them irre- spective of the high costs (and bear these higher costs); or third, try to source out production internationally. The empirical part of Chapter 4 is designed to analyze the organizational choice for several public goods in 21 VSC. Our focus is especially on the extent and constraints of interna- tional outsourcing, a hitherto widely neglected organizational choice in public economics, which is particularly advantageous for VSC. We speak of international outsourcing when a foreign country provides a public good that is «consumed» by the citizens of the VSC, where one can distinguish between two possibilities: First, the VSC has to pay a certain amount for the provision; second, the VSC acts as free-rider, and the providing country accepts this arrangement. In both cases there may be a formal contract or treaty, or only an informal agreement or tacit unterstanding. There are a few results of Chapter 4 worth repeating and summari- zing here. First of all, it is astonishing that there are a lot of public goods 120 
Very small countries: organizational choice and international outsourcing


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