Economics of Public Goods, Tragedy of the Commons, and Collective Action

Public Goods

Goods that are non-excludable (cannot prevent people from consuming them) and non-rivalrous (one person's use doesn't reduce another's ability to use it)

Excludable Goods

Goods where the manager can restrict consumption to certain consumers

Non-Rivalrous Goods

Consumption by one consumer does not prevent or reduce the ability of another to consume it

Club Goods

Examples include cinemas and private parks — excludable but non-rivalrous

Common-Pool Resources

Examples include fish stocks in the sea and coal — non-excludable but rivalrous

Private Goods

Examples include food and clothing — both excludable and rivalrous

Olson - Free Rider Problem

All members share a common interest in obtaining a collective benefit but have no common interest in paying the cost. Each person prefers others to pay while still receiving the benefit

Tragedy of the Commons

When individuals, acting in their own rational self-interest, overuse a shared resource, leading to its depletion

Rational Herdsman Example (Tragedy of the Commons)

Each herdsman seeks to maximize gain by adding more cattle to the shared pasture, even though it leads to overgrazing and depletion

Marginal Benefit - Marginal Cost

Each additional animal provides a near +1 benefit to the herdsman but only a fraction of -1 cost due to shared overgrazing effects

Outcome of the Tragedy

All rational herdsmen add more animals, leading to destruction of the commons despite individual rationality

Modern Examples of the Tragedy of the Commons

Climate change and pollution

Nash Equilibrium

A situation where no player can gain by changing their strategy while others keep theirs unchanged

Collective Action (Basic Setup)

Two citizens can choose to challenge or not challenge a regime. Challenging is costly, but if both challenge, they can force regime change (B > M > 0)

Two Pure-Strategy Nash Equilibria (Two-Citizen Game)

Both challenge or neither challenge

Multiple-Citizen Game (Generalized Collective Action)

A large population game where each citizen chooses whether to challenge. Benefit = B if more than k citizens challenge; cost = M for each