Deck with empty Q & A cards for QA Flashcards
QA tests
What are the 2 main traditions of social order?
**What is a public good? Give some concrete examples to illustrate
Goods that are non-depletable and non-excludable
eg. Free to air TV and national defence
**What is an externality and how does it relate to public goods?
**Why do individuals under-provide public goods when decision making is decentralized?
**What is the “free-rider” problem?
Each individual gets a benefit from the contribution of the other, but she pays none of the cost when the other person provides the good
The outcome achieved is Pareto inefficient. It would be strictly better off if they could make different decisions, but this is not compatible with their incentives.
**Give an example of an ineffcient Nash equilibrium with provision of public goods.
**How can small scale organizations improve on the market outcome?
**How can some of the ideas behind the theory be tested?
**What is the Samuelson rule?
**In what sense is government provision of a public good better than market provision?
**Why does it matter how a public good is financed?
trade off between higher public goods and lower prive consumption
The public good has to be paid for with an income tax, this means reducing each person’s income, and hence consumption of good 2, proportionately
**Why do redistributive preferences matter for whether a public good is provided?
**What is cost-benefit analysis applied to the provision of a public good?
What are the solutions to free-rider problem?
State the formula for perfect substitutes and complements
State 2 samples of public good problem which reflect the logic of free-rider problem
- The prisoner’s dilemma
- The assurance game
Both create the possibility of Pareto inefficient outcomes
What does the parameter reflect?
It reflects how valuable good one is compared to good two.
Run and explain the prisoner’s dilemma payoff matrix and find the Nash equilibrium.
Explain the result.
What is the key assumptions?
Lecture notes week 4-5 p.17
Give an example of the application of the free ride problem
Climate change
- Think of i as a country rather than an individual
- And xi is the consumption of low carbon alternative which benefit the other country
- then without some kind of compact, there would be no incentive to cut carbon emissions
- so left to their own devices country carbon emissions will be too high.
Run the payoff matrix of the assurance game
Explain the result and concerns
Lecture notes week 4-5 p.26
What are the assumptions of using Reciprocal actions (punish/reward) as a solution of free-riding problem?
- It is possible to detect free-riding
- Punishments are possible (deter people to face anti-social action, withdrawing cooperation in th future)
This is more realistic in smaller scale forms of cooperation
What does the Coase Theorem argue?
It argues that we do not necessarily need government if property rights can be defined.
The market system solves the problem once ownership rights are established.
How does the government interfere in the markets for public goods?
Possibility of coercion
- Consumption can be regulated when it has benefits to others, eg. Compulsory vaccination
- The government could take over decisions about the provision of public goods, eg defence
- Use coercive taxing power to fund public good provision
- Assuming the government cares about social welfare
Show how can the government directly regulate provision in prisoner’s dilemma
Lecture notes week 4-5 p.45
What are the key observations of government intervention?
