What does the phrase “marginal social cost” mean?
Not being trained in economics, I’ve been wrestling with a phrase that I found in this part of the Treasury’s 2000 Spending Review.
Specifically, it talks about the idea of making data generated by government agencies free, which of course has to be done by replacing the revenues they lose (because they no longer sell that data commercially) with money raised from taxpayers.
The relevant paragraph (5.7) says in part:
If it did so however the Government would need to fund the resulting public expenditure from taxation. But taxation also normally mis-allocates society’s assets. Taxation absorbs resources and changes behaviour. The marginal social cost of raising public funds is generally agreed to be around 20-30% of the value of the extra tax receipts.
Emphasis my own. (How wonderful, by the way, to see the Treasury – particularly Gordon Brown’s Treasury – arguing against taxation. This is not a political point, but irony doesn’t come any richer.)
First, could someone explain what that phrase about the marginal social cost actually means? I suspect it means that there’s an overhead of 20-30% in running a public body compared to a private one. But I can’t find a clear example or definition.
Secondly, that figure seems to come from Ruggieri’s 1999 paper, which in its outline says it’s for “The marginal cost of public funds in closed and small open economies”. Does the UK count for economic purposes as a closed or small open economy? Your input very welcome.
- The following posts may be related...(the database guesses):
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- Trading Funds report: is PSI the new electricity and roads? (14 March 2008; score: 28%)
- How long does it take a government to do an economics study? (4 May 2006; score: 26.15%)
- Trading Funds report first glance: economists, start here (12 March 2008; score: 25.01%)
- Free access to science speeds its use; would the same happen with government data? (16 May 2006; score: 24.83%)
May 3rd, 2006 at 10:09 am
My guess is that they made it up! Perhaps the emperor is again sky clad.
May 3rd, 2006 at 12:17 pm
No, it must have a meaning to economists; it appears repeatedly. Trying to disentangle precisely what it applies to, though, isn’t at all easy.
May 3rd, 2006 at 1:05 pm
You’re absolutely right, Charles. It seems to be a commonly defined measure having to do with the production of goods and the cost to society. A google search yields definitions from many sources. An example:
# The marginal cost incurred by the producer of a good (marginal private cost) plus the marginal cost imposed on other members of society (external cost).
http://www.econ100.com/eu5e/open/glossary.html
# The cost that the production of another unit of output imposes on society.
wps.aw.com/aw_rohlf_econreason_5/0,5759,11635-,00.html
May 3rd, 2006 at 5:48 pm
Yes, I found those definitions too :-)
The problem is in trying to explain what they actually mean in the context of “should organisations like the Post Office/Ordnance Survey/Hydrographic Office charge for their data? Does the economic benefit outweigh the increased taxation required, however minimal?”
It seems to be saying that you’d need to get 20-30% more than the tax revenues to make it worthwhile. But I’m not certain, which is why I didn’t use that part of the Treasury argument in the piece appearing tomorrow (Thurs) in Guardian Technology.
May 10th, 2006 at 8:06 pm
It seems to me that what it’s saying is: “Charging for public data imposes a detrimental overhead on society (e.g., the cost of bad decisions made in the absence of information that was available but could not be afforded). However, the alternative, which is to raise the same revenue through taxation, also imposes a detrimental overhead (e.g., the carrying out of some process in a suboptimal way so as to minimize the resulting tax).”
May 16th, 2006 at 9:45 am
[...] And we’re still waiting for the Treasury or someone to explain to use what the marginal social cost of raising funds actually means. [...]