Nesting, Public Goods and Price signals

Public goods often exist in a nested structure. The household, the neighborhood, the ward, the city, the state. The classroom, the elementary school, the district, the states’ Department of Education. At what point is it clear that a rung on the ladder needs help in its delivery of the good?

Earlier in the month it was reported that a charter school, Cedar Riverside Community School, would be closing. It serves a neighborhood of high rise subsidized housing nestled between downtown and the University of Minnesota. Lauded as culturally sensitive in its delivery of education to a mostly Somali immigrant community, it has been plagued with threats of closure due to poor performance for more than a decade.

There are many good intentions, hopes and aspirations at the ground level for these types of grass roots public goods to be successful. But when are the price signals strong enough to cause the rung up the ladder to engage, and supplement the production of the good. When is the loss great enough to tip the efforts away from the local level and demand services from a superior level?

With the bright flood lights of the world stage focused on our metro and its racial disparities, it’s hard not to imagine that the closure comes in the wake of last year’s events. It seems pretty costly and inefficient to wait for a crisis to fess up to the fact that these kids were not being served by their neighborhood school.

Maybe the better question is what are the powers in play which dampen or misalign the the signals of lost public good delivery? What stops the natural interactions of feedback and improvement that occur through the system elsewhere?

I can only speculate from afar, but it seems to boil down to two components: structure of (for pay) jobs and positions of power. An enterprise, whether a company or a school is composed of an interlocking group of paid employees. These are entities composed of W2 workers whose livelihoods depend on keeping the boat afloat. A company will sink if it fails to attracts consumers. As long as a school has a pool of students within its attendance boundaries, it will receive funding.

In a typical neighborhood, people with school age children will leave the neighborhood if they feel the schools are inadequate, while others would-be-buyers into the neighborhood will look to settle elsewhere. The dynamics is a little different in a neighborhood like Cedar Riverside as many of the residents are tied to their housing through subsidies. The lack of mobility creates a type of monopoly on the residents both for their support of the school as well as the political structure.

The end result is that the price signals–the signs that the pupils are failing to receive the public services which inevitably are an expense to them and their communities later in life–are muted. They are not able to exit. Their presence in the group is taken for granted by those in paying jobs and those with political power.

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