L16: Public Goods

Question 1

pure public goods

Answer 1

non-rival in consumption and non-excludable

non-rival: one individual’s consumption does not affect another’s opportunity to consume

non-excludable: individuals cannot be denied the opportunity to consume a good

Question 2

impure public goods

Answer 2

goods that satisfy the two public good conditions (non-rival in consumption and non-excludable) to some extent, but not fully

Question 3

optimal provision of public goods (samuelson rule)

Answer 3

with public goods, no rivalry and consumption so we want to sum the valuations of how much people value the good and how much the good is worth

social-efficiency maximising quantity is when MC = the sum of MRS, rather than being set equal to each individual MRS

Question 4

private sector underprovision and free rider problem

Answer 4

market produces less than the efficient amount of public goods because of the free rider problem

when investment has a personal cost but common benefit, individuals underinvest
- private provision by any individual has a positive externalities so goods with positive externalities are underprovided

Question 5

can private provision exist?

Answer 5

for small numbers, cooperation and peer pressure

for large numbers, free riding is severe and cooperation is difficult

Question 6

how to explain charitable contributions?

Answer 6

tax benefits

private benefits

altruism and warm glow

Question 7

crowding out of private contributions

Answer 7

if individuals choose to give more than taxed by the government, they act as if the required payments are the first part of contributions, so government provision only has an effect if individuals are required to pay more than they contribute on their own

Question 8

excludable public goods

Answer 8

goods that are nonrival but excludable
- private provision is possible since there is no longer a free rider problem
- those who don’t contribute can be excluded from consumption

trade off where private companies don’t care about well-being but respond to market signals
- with only government provision, no market signals if goods are provided for free

Question 9

private provision vs private production

Answer 9

public provision where the government pays but doesn’t have to produce it

contracting out: government retains responsibility but hires private firms to provide the good/service
- controversial when we think about private security, prison, garbage services, etc.

Question 10

advantages and disadvantages of contracting

Answer 10

potentially lower costs due to competitive bidding

greater expertise due to specialisation

private sector incentives do not align with public goals, leading to lower public costs and possibly worse outcomes