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1、1-1CHAPTER 4Public GoodsCopyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin4-2Characteristics of GoodsExcludable vs. Nonexcludable Excludable preventing anyone from consuming the good is relatively easyNonexcludable preventing anyone from consuming the good is eit
2、her very expensive or impossibleRival vs. Nonrival Rival once provided, the additional resource cost of another person consuming the good is positiveNonrival once provided, the additional resource cost of another person consuming the good is zero4-3Types of GoodsEXCLUDABLERIVALYESNOYESNOPRIVATEGOODS
3、PUBLICGOODSCOMMONRESOURCESNATURALMONOPOLY4-4Noteworthy Aspects of Public GoodsEven though everyone consumes the same quantity of the good, it need not be valued equally by allClassification as a public good is not absolute; it depends on market conditions and the state of technologyimpure public goo
4、dA commodity can satisfy one part of the definition of a public good but not the otherSome things that are not conventionally thought of as commodities have public good characteristicsPrivate goods are not always provided only by the private sectorpublicly provided private goodsPublic provision of a
5、 good does not necessarily mean that it is also produced by the public sector4-5Some Other Public GoodsBasic researchPrograms to fight povertyUncongested non-toll roadsFireworks display4-6Efficient Provision of Private GoodsPriceAdam (DfA)Eve (DfA)Market (DfA+E)$11516$97310$79514$511718$313922$11511
6、264-7DfADfEDfA+ESf$Quantity of Pizza4-74-8Pareto Efficiency Private Goods CaseMRSfa = Pf/PaSet Pa = $1MRSfa = PfDfA shows MRSfa for AdamDfE shows MRSfa for EveSf shows MRTfaNecessary condition for Pareto efficiency: MRSfaAdam = MRSfaEve = MRTfa4-9Efficient Provision of Public Goods Units of Firework
7、s1234Adam (DrA)$300$250$200$150Eve (DfE) 250 200 150 100Market(DfA+E)$550$450$350$2504-10DrADrEDrA+ESrQuantity of Fireworks$4-104-11Pareto Efficiency Public Goods CaseMRSfa = Pf/PaSet Pa = $1MRSfa = PfDfA shows MRSfa for AdamDfE shows MRSfa for EveSf shows MRTfaNecessary condition for Pareto efficie
8、ncy: MRSfaAdam + MRSfaEve = MRTfa4-12Problems Achieving EfficiencyThe Free-Rider ProblemSolutions to the free-rider problemPerfect price discriminationPolicy Perspective: Global Positioning SystemDo people free ride?4-13Laboratory Experiments and Free-RidingHow a typical experiment worksTypical resu
9、ltsPeople contribute about 50% of resources to provision of public goodContributions fall the more often the game is repeatedCooperation fostered by prior communicationContribution rates decline when opportunity cost of giving goes up“Warm-glow” giving4-14The Privatization DebatePrivatization taking
10、 services supplied by government and turning them over to the private sectorPublic v Private Provision: What is the right mix?Relative wage and materials costsAdministrative costsDiversity of tastes4-15Distributional IssuesCommodity egalitarianism notion that some commodities ought to be made availa
11、ble to everyone4-16Public versus Private ProductionEfficiency of private productionProblems in comparing cost differencesIncomplete contractsCompetition to supply good or serviceReputation buildingPolicy Perspective: Should airport security be produced publicly or privately?Market Environment4-17Preference Revelation MechanismsTEve = MRTra (MRSraTotal MRSraEve)Eves choice: TEve = MRSraEveBy substitution: MRTra (MRSraTotal MRSraEve) = MRSraEveAdd (MRSraTotal MRSraEve) to both sides: MRTra = MRSraTotal
