1、Public Goods and Common Resources, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,1,The
2、Different Kinds of Goods,Excludability Property of a good whereby a person can be prevented from using it Rivalry in consumption Property of a good whereby one persons use diminishes other peoples use, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
3、 in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,2,The Different Kinds of Goods,Private goods Excludable & Rival in consumption Public goods Not excludable & Not rival in consumption Commo
4、n resources Rival in consumption & Not excludable Club goods Excludable & Not rival in consumption One type of natural monopoly, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a cer
5、tain product or service or otherwise on a password-protected website for classroom use.,3,Figure 1, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or ot
6、herwise on a password-protected website for classroom use.,Four Types of Goods,Goods can be grouped into four categories according to two characteristics: (1) A good is excludable if people can be prevented from using it. (2) A good is rival in consumption if one persons use of the good diminishes o
7、ther peoples use of it. This diagram gives examples of goods in each category.,4,The Different Kinds of Goods,Public goods and common resources Not excludable People cannot be prevented from using them Available to everyone free of charge No price attached to it External effects Positive externaliti
8、es (public goods) Negative externalities (common resources), 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website
9、 for classroom use.,5,The Different Kinds of Goods,Public goods and common resources Private decisions about consumption and production Can lead to an inefficient allocation of resources Government intervention Can potentially raise economic well-being, 2015 Cengage Learning. All Rights Reserved. Ma
10、y not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,6,Public Goods,Free rider Person who receives the benefit of a good but avoids paying f
11、or it The free-rider problem Public goods are not excludable Prevents the private market from supplying the goods, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product o
12、r service or otherwise on a password-protected website for classroom use.,7,Public Goods,Government can remedy the free-rider problem, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with
13、 a certain product or service or otherwise on a password-protected website for classroom use.,8,“I like the concept if we can do it with no new taxes.”,If total benefits of a public good exceeds its costs Provide the public good Pay for it with tax revenue Make everyone better off,Public Goods,Some
14、important public goods National defense Very expensive public good $717 billion in 2011 Basic research General knowledge Subsidized by government The public sector fails to pay for the right amount and the right kinds, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplic
15、ated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,9,Public Goods,Some important public goods Antipoverty programs (financed by taxes) Welfare system (Temporary Assistance f
16、or Needy Families program, TANF) Provides a small income for some poor families Food stamps (Supplemental Nutrition Assistance Program, SNAP) Subsidize the purchase of food for those with low incomes Government housing programs Make shelter more affordable, 2015 Cengage Learning. All Rights Reserved
17、. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,10,Are lighthouses public goods?,Lighthouses Mark specific locations so that passin
18、g ships can avoid treacherous waters Benefit: to the ship captain Not excludable, not rival in consumption Incentive: free ride without paying Most are operated by the government, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for u
19、se as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,11,What kind of good is this?,Are lighthouses public goods?,In some cases Lighthouses are closer to private goods Coast of England, 19th century Lighthouses were
20、 privately owned and operated The owner of the lighthouse charged the owner of the nearby port If the port owned did not pay, lighthouse owner turned the light off Ships avoided that port, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, exc
21、ept for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,12,Are lighthouses public goods?,Decide whether something is a public good Determine who the beneficiaries are Determine whether the beneficiaries can b
22、e excluded from using the good A free-rider problem When the number of beneficiaries is large Exclusion of any one of them is impossible, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed w
23、ith a certain product or service or otherwise on a password-protected website for classroom use.,13,Public Goods,The difficult job of costbenefit analysis Government Decide what public goods to provide In what quantities Costbenefit analysis Compare the costs and benefits to society of providing a p
24、ublic good Doesnt have any price signals to observe Government findings Rough approximations at best, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
25、otherwise on a password-protected website for classroom use.,14,How much is a life worth?,Cost: $10,000 for a new traffic light Benefit: increased safety Risk of a fatal traffic accident Drops from 1.6% to 1.1 % Obstacle Measure costs and benefits in the same units Put a dollar value on a human life
26、? Priceless = infinite dollar value, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,15,H
27、ow much is a life worth?,Implicit dollar value of a human life Courts: award damages in wrongful-death suits Total amount of money a person would have earned if he or she had lived Ignores other opportunity costs of losing ones life Risks that people are voluntarily willing to take and how much they
28、 must be paid for taking them Value of human life = $10 million, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected web
29、site for classroom use.,16,How much is a life worth?,Cost-benefit analysis Traffic light Reduces risk of fatality by 0.5 percentage points Expected benefit = 0.005 $10 million = $50,000 Cost ($10,000) Benefit ($50,000) Approve the traffic light, 2015 Cengage Learning. All Rights Reserved. May not be
30、 copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,17,Common Resources,Common resources Not excludable Rival in consumption The tragedy of the com
31、mons Parable that shows why common resources are used more than desirable From societys standpoint Social and private incentives differ Arises because of a negative externality, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use
32、 as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,18,Common Resources,The tragedy of the commons Negative externality One person uses a common resource Diminishes other peoples enjoyment of it Common resources ten
33、d to be used excessively Government can solve the problem Regulation or taxes to reduce consumption of the common resource Turn the common resource into a private good, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permi
34、tted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,19,Common Resources,Some important common resources Clean air and water Negative externality: pollution Regulations or corrective taxes Congested roads Negative externality
35、: congestion Corrective tax: charge drivers a tool Tax on gasoline, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected
36、website for classroom use.,20,Common Resources,Some important common resources Fish, whales, and other wildlife Oceans are the least regulated common resource Needs international cooperation Difficult to enforce an agreement Fishing and hunting licenses Limits on fishing and hunting seasons Limits o
37、n size of fish Limits on quantity of animals killed, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for cla
38、ssroom use.,21,Why the cow is not extinct,Animals with commercial value that are threatened with extinction Buffalo North America Hunting in 19th century Elephants African countries Hunting today, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in p
39、art, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,22,Will the market protect me?,Why the cow is not extinct,The cow Commercial value Species continues to thrive Cows are a private good Ranches a
40、re privately owned Rancher - great effort to maintain the cattle population on his ranch Reaps the benefit, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or servi
41、ce or otherwise on a password-protected website for classroom use.,23,Why the cow is not extinct,Elephant - common resource Poachers are numerous Strong incentive to kill elephants Government of Kenya, Tanzania, and Uganda Illegal to kill elephants and sell ivory Hard to enforce laws Decreasing popu
42、lation of elephants, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,24,Why the cow is no
43、t extinct,Government of Botswana, Malawi, Namibia, and Zimbabwe Made elephants a private good People can kill elephants on their own property Landowners have an incentive to preserve the species Elephant populations have started to rise, 2015 Cengage Learning. All Rights Reserved. May not be copied,
44、 scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,25,Importance of Property Rights,Market fails to allocate resources efficiently Because property rights
45、 are not well established Some item of value does not have an owner with the legal authority to control it, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or servi
46、ce or otherwise on a password-protected website for classroom use.,26,Importance of Property Rights,The government can potentially solve the problem Help define property rights and thereby unleash market forces Regulate private behavior Use tax revenue to supply a good that the market fails to supply, 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,27,
