Public Goods & Common Pool Resources
High rival in consumption low excludability
Common pool resource good
Rival and excludability good table
Ordinary Private goods Club goods not quasi-public common pool resource goods public goods
non-rival aggregate demand curve
all individuals can consume the public good at the same time so the market demand curve is derived by adding together the individual demand curves vertically
Low rival in consumption high excludability
club goods
striking a private deal
cost< payment/transfer<benefit
Why have buffalo faced the threat of extinction but cows have not
cows are private property and buffalo are not
non-excludable goods
goods that do not have to be paid for to be consumed
Non-rival goods
goods that more than one person at a time can consume
Excludable goods
goods that must be paid for to be consumed
Rival goods
goods that only one person can consume at a time
solution to free rider problem
if the government provides public goods, the government makes paying for them mandatory. ex. taxes
The Coase Theorem
negotiation leads to the socially efficient outcome regardless of who has the legal property right (ownership of property or resources)
High rival in consumption High excludability
private good
solutions to tragedy of the commons
private ownership (defined by govt) government regulations (ex. fishing limits)
low rival in consumption low excludability
public good
Tragedy of the commons
results when common pool resources are over used
If the property rights change
the firms effected would have either shut down or fund the reforms
what is the right amount of public good
the government should provide public goods until marginal social benefit is equal to the marginal social cost
Why does the market not provide public goods
the market is not interested in providing public goods/common pool resource goods because those you consume the good may not have to pay. Therefore the government should provide such goods.
What goods will the market not provide
the two types of goods that are non-excludable public goods common pool resources
Coase Theorem variables
transaction costs, like the time it takes to negotiate, cannot be to high property rights must be clearly defined the number of agents affect negotiations and if it is too high things might get tricky.
Free rider problem
when individuals do not have to pay for goods that benefit them because non-excludable