Chapter 11 Public Goods and Common Resources Excludability-->The property of a good whereby a person can be prevented from using it Rival in Consumption--> The property of a good whereby one person?s use diminishes other people?s use. Private Goods--> Goods that are excludable and rival in consumption (most goods in the economy) Public Goods--> Goods that neither excludable nor rival in consumption Common Resources-->Rival in consumption but not excludable Natural Monopoly-->Excludable but not rival in consumption Goods that are no t excludable are related to externalities. Public Goods--(whose gonna pay?? government...) Free Rider Problem Free Rider--> a person who receives the benefit of a good but avoids paying for it Governments can provide a public good by paying it with tax revenue. Examples: National Defense Basic Research (not the specific technological knowledge as that requires patent and exclusive rights, but the general knowledge e.g. math theorems) Fighting Poverty (private charity is not the best way because of free riders, taxes is good.) Case study Are lighthouses public goods? To answer the question, one must determine who the beneficiaries are and whether these beneficiaries can be excluded from using the good Light houses are Public-->benefits many ship captains Private-->benefits port owner Cost Benefit Analysis a study that compares the costs and benefits to society of providing a public good (very tough job, because its very hard to judge what a public goods value is to everyone in the society) Case Study How much is a life worth? One good way is to look at the risks that people are voluntarily willing to take and how much they must be paid for taking them. (e.g. the mortality risks of different jobs) Common Resource (whose taking care of it?) Tragedy of the Commons-->A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole e.g. When one family?s flock grazes on the common land, it reduces the qualify of the land available for other families (negative externality) Solution for pollution: tax, permits, regulate Solution for land: divide the land, make it a private good Important Common Resources Clean air and water Congested Roads (public goods or common resources. Tolls are collective taxes on the externality of congestion, sometimes its not good because the cost of collecting is too high. Sometimes the congestion varies throughout the day so tolls can be charged in rush hour. Gasoline tax can reduce congestion, but it may discourage driving on uncongested roads) Fish Whales and Other Wildlife (2 problems, 1. Many countries have access to the oceans so international cooperation is needed. 2. Ocean is so vast that enforcing any agreement is difficult. In US there is charge for fishing license and restricted hunting season, small fish must be thrown back, and animals killed must be limited.) Case Study Why the Cow is not Extinct Why is the commercial value of ivory a threat to the elephant, while the commercial value of beef is a guardian of the cow? Because elephants are common resources and cows are private goods!! In all cases, the market fails to allocate resources efficiently because property rights are not well established. The government helps define property rights to release market forces. The government can supply a good that the market fails to supply The government can regulate private behavior
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