Chapter 11: Public Goods & Common Resources

Excludable

individual can be prevented from using it

Rival

one person’s use decreases the availability for others

Private goods

Excludable and Rival

Ex: car, sweater, retail items, concert tickets

Club Goods

Excludable and Non-Rival

Ex: electricity bill, wifi/internet, gym membership

Common Resources

Non-excludable and Rival

Ex: catching a fish, non-toll road that is busy, free coffee stand, a library book

Public Goods

Non-excludable and Non-rival

Ex: public park, national defense, free museums

Do private markets reach the socially optimal quantity of public goods provision?

NO, private firms don’t provide public goods

What incentives issue comes with public goods?

The free-rider problem = people get benefits without paying

Can private markets provide public goods? Give an example.

Private markets may provide some level of public goods (but it is not guaranteed to reach the socially optimal quantity).

Ex: NPR

• Can listen without paying, but they often ask for donations

  • NPR isn’t going to reach the socially optimal quantity since not everyone who listens donates

Incentives issue that comes with common resources?

Tragedy of the commons = absence of incentives to prevent depletion or overuse of common resources.

• We see people tend to maximize their own individual use and don’t internalize costs imposed on others

  Ex: cows overgrazing common land

Possible solutions to common resource issues? (3)

You want the individual to face the increase in cost

• Regulations

• Taxes

• Establish property rights (changing the nature of a good)