Should the government finance public goods in rural areas? : a review of arguments

This paper reviews three arguments why government should not directly finance public goods provision in the countryside: (1) sorting and voting of residents leads to efficient local public goods provision, (2) community governance better copes with incomplete contracting in public goods, and (3) public provision drives out voluntary private provision of public goods. Theory and empirical evidence partly support these arguments. The adequate level of rural governance appears to be often below the national or European level, and policy should focus on the institutional premises of public goods provision rather than on centralized payments to public good providers.