The Private Provision of Public Goods: An Analysis of Homes on Golf Courses

Article excerpt

Abstract

This paper examines the joint production of golf and real estate development. The empirical results of this analysis show that, over time, golf courses are being constructed less for recreational golf and more for contractual assurance of green open space for homes. We believe that this fundamentally provides some evidence that the demand for environmental quality is growing and that markets are increasingly able to find creative contracting mechanisms to satisfy demands for public goods.

JEL Codes: H49, Q56, R31

Keywords: Golf; Real estate; Environmental quality

I. Introduction

As people and economies grow richer, they demand enhanced environmental quality. At least that seems to be one of the noncontroversial conclusions that can be reached from economic analysis of environmental Kuznets curves (Yandle et al., 2004). Green space initiatives are increasingly common on the political landscape, and the issue is full of economics, politics, emotion, and opinion. Therefore, we start from the position that there is some fledgling demand for people to sequester or otherwise prevent the development of certain areas, particularly those near housing. These areas are being preserved as open, pasture, wooded, prairie, or raw land and not converted into commercial or residential development. We propose that homes on golf courses may be an entrepreneurial attempt at supplying the joint provision of golf courses along with housing on desirable green spaces.

It is fair to say that economic analysts, pundits, and lay people have long argued that the private, free market may regularly fail to provide public goods such as green space, open space, parks, and similar environmental amenities owing to the public goods and free rider problem. While that may very well be true, we think a second look may reveal that the growing demand for these environmental assets may be met in unusual ways by private, profit-oriented entrepreneurs.

We believe that there is a significant, private, demand for environmental amenities that grows as people become wealthier. Hence we study how markets and contract solutions might come to meet this demand. We do this in two seemingly separate but actually similar contexts: the demand for open, green space and the demand for golf. One important caveat is in order. We do not intend to argue or present evidence that the socially optimal level of collective goods is created or produced by private demanders, but rather, that markets are not barren when it comes to the provision of these public goods. This is not a normative analysis.

This paper explores whether golf courses may be substitutes for natural open green space in the eyes of some consumers and to some extent satisfy their demands for environmental quality. Simply, are golf courses today being constructed, in part, not only for people to play golf, but also to provide open green space to adjacent home owners? We remain agnostic on, and it is not the point of our paper, whether golf courses are superior to alternative forms of green spacing such as conservation easements, deed covenants, taxation and regulation, or similar devices.

We start from the following factual basis. Golf course construction proceeds at an unusually high rate given the growth in the number of people playing golf or the amount of golf being played. In 2000, an estimated 56,000 new homes on golf courses were constructed at a total cost of $8.4 billion, and they make up approximately 4 percent of the total 1 .5 million homes constructed in the United States (Golf 20/20, 2003). In fact, the golf industry laments with some ever-increasing agony the continuing construction of courses with no concomitant apparent increase in the demand for golf:

Hit with a shot of bad weather and a surge in the construction of new courses, many golf course owners across Wisconsin are struggling to stay below par. "We are definitely saturated in terms of courses," said Terianne Petzold, executive director of the Golf Course Owners of Wisconsin, a Milwaukee-based industry group. …