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