CH 17 Public Goods and Common Resources

a good is excludable

if a person can be prevented from using it

excludable examples

fish tacos, dial-up internet service

non excludable examples

FM radio signals, national defense

doesn’t stop another person

a good is rival in consumption

if one persons use of it diminishes others use

rival example

fish tacos

not rival: MP3 file of coldplay song

private goods

excludable and rival

most goods are private goods

• private goods can generally be efficiently provided in competitive markets

public goods

non excludable and nonrival

suffer the free rider problem, so no private firm would be willing to produce them

and because they are non-rival in consumption it would be inefficient to charge people for consuming them

MSB=MC

• because they are non-excludable, it is difficult to get people to pay for them voluntarily

• because they are non-rival, production costs do not significantly change with additional users

• once it exist whole public benefits

• benefit doesn’t change by the # of people

• no way for a private firm to earn enough revenue to create as much society wants

public goods example

• public sewer system

• scientific research

• voluntary contributions

• individuals or firms who make money in an indirect way

• social encouragement or pressure in small communities

• the government

artificially scarce goods

excludable but non-rival

• market can provide these goods by do so at an inefficient level

• WIFI: excludable and essentially non-rival

  Rutgers can exclude other people from using wifi if not Rutgers student

• if 10 or 1 people use wifi doesn’t affect your wifi

• on demand movies

common resources

non-excludable but rival

• consumers cannot be excluded from consuming these goods but when anyone consumes it, there is one less for everyone else

• there is a strong incentive to consume these resourced before others

• cant stop people from consuming it

• rival more people use it, benefit can dimish not as good

• ex: too many animals eating on farm= not enough grass

Rival in consumption and excludable

private goods

• wheat

• bathroom fixtures

non-rival in consumption excludable

artificially scarce goods

• on demand movies

• computer software

Rival in consumption non-excludable

common resources

• clean water

• biodiversity

non-rival in consumption non excludable

public goods

• public sanitation

• national defense

free rider problem

many individuals are unwilling to pay for consumption of non-excludable goods and instead will take a “free ride” on anyone who pays

solutions

1. Tax or regulation

2. making it excludable and assigning property rights to it

3. creating a system of tradable licenses

4. ownership