Lecture 3: Public Goods

Question 1

Public Provision

Answer 1

Government provides a good directly (funding + promotion)

Question 2

Public goods assumption

Answer 2

1. non-rivalry in consumption: one individual’s consumption of a public good
   does not affect another’s opportunity to consume the good
2. non-excludable: individuals cannot deny each other the opportunity to
   consume a public good

Question 3

public financing/private production

Answer 3

Governments pay, private companies produce

Question 4

Factors that mitigate public goods problems

Answer 4

1. some individuals care more than others: * Private provision is more likely to surmount the free-rider problem when individuals are not identical, and
   when some individuals have an especially high demand for the public good
2. altruism:
   * When individuals value the benefits and costs to others in making their consumption choices
3. warm glow:
   * Model of public goods provision in which individuals care about both the total amount of the public good
   and their own particular contributions as well
   * Different from altruism because people don’t care about just the amount of the public good – here, one
   feels good about the act of contributing to the common good per se

Question 5

Freerider problem

Answer 5

When an investment has a personal cost, but a common benefit, selfish individuals will underinvest (goods with a positive externality are undersupplied by the market)

Question 6

Impure perfect goods

Answer 6

Goods that satisfy conditions (i: non-rivalry in consumption) and (ii: non-excludable) to
some extent but not fully