Financing public goods through markets : the case of advertising

This article investigates the phenomenon of advertising in a scope of private provision of public goods, regarding it as a means to bridge the public goods and private goods. Unlike certain theories which consider the literal advertising merely as a limited additional source of revenue of the public goods providers, I expand the concept of "advertising" into a much broader extension by endowing it the function of attracting public "attention", which must resort to public goods as the vehicle, for the advertised private goods. After examining such mechanisms as "tying arrangement" between public and private goods in previous economic literatures, I deduce the several issues of providing public goods for free into a case called "financing public goods by advertising" and classify the relationship between public and private goods mediated by advertising into four categories. Afterwards, I contrast such an arrangement with the Tiebout model, and then aiming at four important problems the advertising-financing method is facing, bring forward a simple model to prove that, in some circumstances, the provision of public goods financed by advertising may be Pareto efficient in conceptual meanings. At the end of the paper, brief analyses about the preconditions of optimality are presented, followed by a few cursory policy implications and an estimation of the application prospects.