Public Goods and Common Resouces (2).pptx
daniela.ortizvazquez
Characterizations of Goods
- To distinguish between private good and public goods, economists ask two questions:
- Does the good have the property of rival consumption?
- Is it possible to exclude any individual from the benefit of the public good? (without incurring great cost)?
Public Goods
An item whose consumption is not decided by the individual consumer but by the society as a whole, and which is financed by taxation.
They are non rival in consumption and/or their benefits are nonexcludable
They are non rival in consumption and/or their benefits are nonexcludable
Governments often charge fees, called user fees.
- Toll roads are financed by user fees.
- Airline ticket tax can be thought of as a user fee.
Non-Rival consumption
A characteristic of public goods:
One person’s enjoyment of the benefits of a public good does not interfere with another’s consumption of it.
One person’s enjoyment of the benefits of a public good does not interfere with another’s consumption of it.
Examples of Public Goods
-National Defense:
National defense can’t be provided at different levels to different citizens. Similarly for the level of police protection in a community, but police protection (unlike national defense) is subject to congestion: a larger population requires a larger police force to provide the same level of protection.
-Lighthouse:
Non‐excludable because it’s not possible to exclude some ships from enjoying the benefits of the lighthouse while at the same time providing the benefits to other ships; and
Non‐rivalrous because if the lighthouse’s benefits are already being provided to some ships, it costs nothing for additional ships to enjoy the benefits as well.
National defense can’t be provided at different levels to different citizens. Similarly for the level of police protection in a community, but police protection (unlike national defense) is subject to congestion: a larger population requires a larger police force to provide the same level of protection.
-Lighthouse:
Non‐excludable because it’s not possible to exclude some ships from enjoying the benefits of the lighthouse while at the same time providing the benefits to other ships; and
Non‐rivalrous because if the lighthouse’s benefits are already being provided to some ships, it costs nothing for additional ships to enjoy the benefits as well.
Free Rider Problem
A problem intrinsic of public goods: Because people can enjoy the benefits of public goods whether they pay for them or not, they are usually unwilling to pay for them.
Example of Free Rider Problem
In many communities, fire department are supported voluntarily.
Some individuals refuse to contribute to the fire department, yet, in an area where the building are close together, the fire department will usually put out a fire in a non-contributor's building because of the threat it poses to adjacent contributor’s structures.
Knowing that they will be protected even if they do not pay induces some people to be free riders.
Some individuals refuse to contribute to the fire department, yet, in an area where the building are close together, the fire department will usually put out a fire in a non-contributor's building because of the threat it poses to adjacent contributor’s structures.
Knowing that they will be protected even if they do not pay induces some people to be free riders.
Samuelson´s Theory
Paul Samuelson demonstrated that there exists an optimal, or most efficient, level of output for every public good.
Theory:
Theory:
- An efficient economy produces what people want. Private producers, whether competitors or monopolists, are constrained by the market demand for their products.
- If they can’t sell their products for more than it cost to produce them, they are out of business. But because private goods permit exclusion, firms can withhold their products until households pay.
- Buying a product at a posted price reveals that it is “worth” at least that amount to you and to everyone who buys it
Common Resources
•This common goods are goods that are rivalrous and non-excludable.
NON-EXCLUDABLE: Once a good is produced, no one can be excluded from enjoying its benefits.
RIVALROUS: A rival good is a good whose consumption by one consumer prevents simultaneous consumption by other consumers
RIVALROUS: A rival good is a good whose consumption by one consumer prevents simultaneous consumption by other consumers
Examples of Common Resources
Fish in stocks in international waters is an perfect example because no one is excluded from fishing.
Some important common resources
- Clean air and water: The pollution is creating this resources to be scared.
- Oil pools:Consider an underground pool of oil so large that it lies under many properties with different owners. Any of the owners can drill and extract the oil, but when one owner extracts oil, less is available for the others
- Fish, whales and other wildlife: animals have a commercial value, and anyone can go to the ocean and catch them.
Tragedy of the commons
One person’s use of the common resources reduces other people’s enjoyment of it.
The tragedy of the commons describes such situations in which people withdraw resources to secure short-term gains without regard for the long-term consequences.
The tragedy of the commons describes such situations in which people withdraw resources to secure short-term gains without regard for the long-term consequences.
Example of tragedy of the commons
Fish in international water:
Each individual fishermen will choose to catch some of the fish to sell.
What happens if all the fishermans thinks in the same way. it will get to a point where the total stock of fish is depleted and none will be able to fish.
Each individual fishermen will choose to catch some of the fish to sell.
What happens if all the fishermans thinks in the same way. it will get to a point where the total stock of fish is depleted and none will be able to fish.
Example (government regulations):
Throughout history many species of animals have been threatened with extinction for example the elephants are being hunted because of their ivory. The government has being fixing the problems in two ways:
- Converting elephants in to a common good.
- Making illegal to kill the animals.
CASE STUDY
The New York Public Library has been an essential provider of free books, information, ideas, and education for all New Yorkers for more than 100 years.
Founded in 1895. With nearly 53 million items, the New York Public Library is the second largest public library in the United States (behind the Library of Congress), and fourth largest in the world. It brings together an extraordinary richness of resources and opportunities available to all.
- Astor and Lenox
- struggling financially
- Main Branch on Fifth Avenue and 42nd Street
This is a well-know public good both in USA as in the rest of the world
FILMS
- 42nd Street
- Portrait of Jennie
- Breakfast at Tiffany's
- You're a Big Boy Now
- A Boy Named Charlie Brown
- Beneath the Planet of the Apes
- Chapter Two
- Escape from New York
- The Time Machine
- Sex and the City
- The Wiz
- The Day After Tomorrow
