Lecture 25: Common Resources, Public Goods

what is the problem with the Coase Theorem?

there are often impediments to negotiations; when transaction costs are high you can’t reach the socially optimal outcome

if transaction costs are ________ it doesn’t matter how the court rules

zero

what is the problem with the Coase Theorem?

there are often impediments to negotiations; when transaction costs are high you can’t reach the socially optimal outcome

if transaction costs are ________ it doesn’t matter how the court rules

zero

what are the characteristics of public goods?

non-exclusive

non-rival

what does non-exclusive mean?

it is either impossible or very expensive to exclude someone from the benefits of the goods; impossible or extremely expensive to exclude free riders

what is an example of a non-exclusive good?

public parks

what is an example of a public good?

a lighthouse

what does it mean to be non-rival?

benefits that one person gets does not deprive someone else from the benefit

why is a pizza slice a rival?

the nutrients and tastes are going to you while you are eating it and not to someone else

a private good is

exclusive and rival

a natural monopoly is (exclusive/non-exclusive, rival/non-rival)

non-rival and exclusive

why is satellite radio non-rival and exclusive?

your use of satellite radio doesn’t affect other people but you can be excluded by not paying for the service

what kind of good is a traffic-less road in Montana (you are from CA)?

public good

what kind of good is fishing in a public lake?

common resource- when someone gets a fish they deprive someone else

what kind of a good is the Golden Gate Bridge?

private good- exclusive because you have to pay and rival because you add congestion

what is the problem created by common resources?

the incentive is to overuse the resource to a point of depletion or extinction

the MR of bonds is like the __ of buying a cow

MC

what is the end result? why is this a problem?

5 cows grazing on the commons

the optimal outcome is to have 3 cows- it gives you the highest value to society (where MR=MC)

what happens when a landowner charges rent?

they act in their self-interest but it also happens to be the socially optimal outcome

how can the problem of common resources be solved?

turn the common resource into a private good - there is no more overuse

what is the problem with the solution for common resources?

sometimes it is too expensive to turn it into a private good

if you can privatize a good it becomes

sustainable

what are the problems with public goods?

free rider problem that leads to an under/no supply of the good

free rider problem

people are benefiting from resources, goods, services, etc that they are not paying for

what is the solution to the problem for public goods?

sponsorship

tying private goods to public goods to pay for the public good

taxation

why does taxation occur?

if we rely on private markets we won’t be able to finance public goods

taxation is _________ payment

coercive

if we rely on Pareto there will be an ________/___ supply of public goods

undersupply, no

taxation achieves what kind of efficiency?

Kaldor-Hicks

rational abstention

not participating in democracy

rational to not participate because the expected benefits are less than the cost of