Chapter 11 Public Goods and Common Resources The Different Kinds of Goods from using it Excludability the property of a good whereby a person can be prevented Rivalry in consumption the property of a good whereby one person s use diminishes other people s use Private goods goods that are both excludable and rival in consumption ice cream cone must pay to have it or else you wont have it and once you have it someone else cannot eat the same cone Public goods goods that are neither excludable nor rival in competition tornado siren impossible to prevent any single person from hearing it and one person does not reduce the benefit to anyone else Common resources goods that are rival in consumption but not excludable fish one person catches fish there are fewer fish for others to catch but this doesn t stop fisherman from fishing Club goods goods that are excludable but not rival in competition fire protection easy to exclude someone from using this good by not responding to a fire but once fire protection is paid for the cost of protecting one more house is small Public Goods Free riders a person who receives the benefit of a good but avoids paying for it free rider problem prevents the private market from supplying public goods however the government can potentially remedy the problem if it thinks the total benefits outweigh the costs then it will provide the public good pay for it with tax revenue 3 most important public goods national defense basic research fighting poverty National defense o It is impossible to prevent any single person from enjoying the benefit of this defense when one person enjoys the benefit of national defense he does not reduce the benefit to anyone else o Most expensive public good Basic research Fighting poverty o General knowledge is a public good once a theorem is proven the knowledge is not excludable anyone in society can use it nor rival in consumption one person s use does not prevent any other person from using it o One person s enjoyment of living in a society without poverty would not reduce anyone else s enjoyment of it not rival in consumption o Once poverty is eliminated no one can be prevented from taking pleasure in this fact not excludable Cost benefit analysis a study that compares the costs and benefits to society of providing a public good should we build a new highway Common Resources Available free of charge to anyone who wants to use them not excludable One person s use of the common resource reduces other ppl s ability to use it rival in consumption Tragedy of the commons a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole once good is provided policymakers need to be concerned about how much it is used o Arises bc of an externality when one families sheep grazes on the common land it reduces the quality of the land available for other families Common resources tend to be used excessively gov can solve the problem by using regulation or taxes to reduce consumption of the common resource or turn the common resource into a private good Clean air and water o Pollution is a negative externality that can be remedied with regulations or with corrective taxes on polluting activities o Environmental degradation is a modern tragedy of the commons Congested roads affect anyone else o Regular road public good not congested so one person s use doesn t o Negative externality when one person drives on the road it becomes more crowded and others must drive slower o Gov can address congestion by tolls Fish Whales and other wildlife o Anyone can go to the ocean and catch whatever is available o Excessive fishing can destroy commercially valuable marine populations o Gov charges for fishing hunting licenses Conclusion The Importance of Property Rights The market does not provide all goods adequately markets don t ensure that we have clean air or a safe country therefore we rely on the gov to do this Some item of value does not have an owner with the legal authority to control it property rights not well established
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