Club good
Thus, club goods have essentially zero marginal costs and are generally provided by what is commonly known as natural monopolies.
[3] One of the most famous provisions was published by Buchanan in 1965 "An Economic Theory of Clubs," in which he addresses the question of how the size of the group influences the voluntary provision of a public good and more fundamentally provides a theoretical structure of communal or collective ownership-consumption arrangements.
These include the free movement of goods, services, persons and capital within the Internal Market, and participation in a common currency: for example, adding extra countries to the Schengen Area would not make it more difficult for citizens of current EU members to move between countries.
The existence of club goods for children may offset the effects of sibling competition for private investments in larger families.
Just over the last two decades before his provision in 1965, scholars started to extend the theoretical framework and communal or collective ownership-consumption arrangements were considered as well.
While it extended the previously existing theoretical framework, Buchanan found that there was still a missing link that would cover the whole spectrum of ownership consumption possibilities.
[8] The goal of his theory was to address the question of determining the "size of the most desirable cost and consumption sharing arrangement".
An issue of club theory is that it may not result in equal and democratic distribution of the good eventually due to its excludability characteristic.
[10] Examples of private goods that Buchanan offered to illustrate this concept were hair cuts and shoes.
In the 90s Richard Cornes and Todd Sandler came up with three conditions to determine the optimal club size, which were based at equating costs and benefits at the margin.
The free exit option prevents clubs from charging prices that are too high, but incentivizes free-riding.
Olson and Zeckhauser (1967) published a cost-sharing analysis of the North Atlantic Treaty Organisation (NATO).
The question raised is whether the differences in membership contribution are reasonable given each country's valuation of the provided good by the alliance.
