Club Goods and Local Government

Problem: Private approaches to urban service provision are becoming more popular. Some argue these approaches are more efficient and more democratic than government provision because they are voluntary. While these club approaches can shift the burden of infrastructure finance to direct groups of users, they can also fragment urban service delivery and justify unevenness in service quality across the city. Purpose: This article explores examples of club goods, that is, common interest developments (CIDS) for housing, business improvement districts (BIDs) for commercial areas, and economic development zones (EDZs) for commercial and industrial areas, and assesses their implications for local government. Emphasis is given to how clubs internalize benefits to members of the club but shed externalities onto the broader local government system. A critical governance concern is the impact on the long-term ability of local government to coordinate across disparate elements and interests in the community. Methods: I discuss three types of clubs ranging from totally private common interest developments (home owners associations), to partially private business improvement districts, to totally public economic development zones. These club types are analyzed in terms of economic benefits, externalities, governance structure, and broader concerns with equity and sustainability. Results and conclusions: Club good approaches to urban infrastructure delivery enhance private investment and reduce costs to cities, but they also shed externalities onto the broader city. Although these clubs are often private associations, this article shows how they are critically supported by government, beyond the property rights requirement assumed by most theorists. A further concern is that club approaches may undermine support for equity and redistribution at the broader city level. Takeaway for practice: Local governments are under pressure to provide public goods efficiently and engage private voluntary approaches whenever possible. The efficiency and popularity of club approaches derives in part from their ability to capture the benefits of increased investment for internal benefit. However, local government managers also must manage diversity and build public support for investment to ensure equity across the urban territory. Balancing the benefits of club goods with the need for broader urban integration is a key challenge for planners and urban managers. Research support: None.