public goods and issues sfls
TRANSCRIPT
Providing Goods and some Problems
part 2
So far we have mostly talked issues related to these type of goods
We will talk more about this one in a very long time later
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Good Types…a little more detail
But now I want to focus on these types
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Good Types…a little more detail
Classifying Goods and some Problems:1.) Classification and Good
Types3.) Problems of the Non-Excludables2.) Providing Public Goods
Public goods are in theory unlimited, so it’s hard to put a price on them so markets don’t provide these as much.
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Public goods
Good Types…a little more detail
Why Markets don’t do a good job with these types:
The good is not produced in the market, even if buyers collectively value the good higher than the cost of providing it. Public Goods have these qualities and therefore governments often have to produce them.
Good Types…a little more detail
Goods that are Non-excludable
-You can’t stop someone else from using it, so you can’t make money off of it and thus are free to use.
Goods that are Non-rivals
- Since there is an infinite supply of these, it is difficult to control and a market with very few suppliers seems “natural”
Result:
-A person who enjoys the benefits of a good or service without paying for it.
Because of the free-rider problem, the market would provide too small a quantity of a public good.
To produce the efficient quantity, government action is required.
Public Goods –The problem that some don’t pay
Good Types…a little more detail
Free Rider
No individual has an incentive 激励 to pay for providing the efficient quantity of a public good because each individual’s marginal benefit is less than the marginal social benefit.(MPB < MSB)- Someone has to pay for them, but everyone gets to use them.
This is a primary justification for the existence of government. 一个主要的原因有政府- The decision to make public goods is a cost/benefit analysis. (as well as other factors, such as politics.)
Providing Public Goods
Providing Public GoodsQuestions to understand:
1.) How do you get people to pay for these goods then? 2.) How much Public Goods should be
produced?3.) What problems happen with producing Public goods?
Providing Public GoodsQuestions to understand:
1.) How do you get people to pay for these goods then? 2.) How much public goods should be
produced?3.) What problems happen with producing Public goods?
Taxes
Where the money comes to pay for public goods
Introduction to Taxes:3.) Efficacy and Fairness of Taxes
Three ways to view types of Taxes:I. Proportional Tax
II. Progressive TaxIII. Regressive Tax
How do you get people to pay for these goods then?
And add all the issues about it.
Two principles:
Equity vs. Efficiency 公平与效率
Efficacy and Fairness of Taxes
2.) Ability to Pay Principle:
1.) Benefits Principle:
Those with greater ability to pay a tax should pay more tax.
Those who benefit from public spending should bear the burden of the tax that pays for that spending.
Who should pay for those public goods?
Providing Public GoodsQuestions to understand:
1.) How do you get people to pay for these goods then? 2.) How much public goods should be
produced?3.) What problems happen with producing public goods?
Cost-Benefit Analysis (CBA)
Providing Public Goods How much Public Goods should be produced?
- a study that compares the costs and benefits of providing a public good.
- If the benefit of a public good exceeds or equals the cost of providing it, government should provide the good and pay for it with a tax if the private market doesn’t provide enough of it.
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Benefits VS. Marginal Costs 边际效益 针对 边际成本 (MB) (MC)
If MB > MC = It is worth doing 这是值得的If MB = MC = It may be worth doing “a wash” 收支平衡If MB < MC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
Remember this?
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Social Benefits VS. Marginal Social Costs 边际效益 针对 边际成本 (MB) (MC)
If MSB > MSC = It is worth doing 这是值得的If MSB = MSC = It may be worth doing “a wash” 收支平衡If MSB < MSC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
Just apply it to society as a whole.
The benefit a public good provides is the value of its services.
Because security lights in a common parking area are non-rival and non-excludable, they are a public good.Everyone consumes the same quantity of them.
To find the economy-wide value of the security lights, we add together the marginal benefits of everyone who benefits from them.
Marginal Social Benefit (MSB) of a Public Good
Providing Public GoodsExample with street lights:
How many lamp posts to make?
Find each person’s marginal benefit
MB
Q 1 2 3 4 5 6
70 60 50 40 30 20 10
MB
Providing Public GoodsExample with street lights:
MB
Q 1 2 3 4 5 6
70 60 50 40 30 20 10
MB
How many lamp posts to make?
Find each person’s marginal benefit
Providing Public GoodsExample with street lights:
MB
Q 1 2 3 4 5 6
70 60 50 40 30 20 10
MB
How many lamp posts to make?
Find each person’s marginal benefit
Providing Public GoodsExample with street lights:
MB
Q 1 2 3 4 5 6
70 60 50 40 30 20 10
MB
How many lamp posts to make?
Find each person’s marginal benefit
Providing Public GoodsExample with street lights:
MB
Q 1 2 3 4 5 6
70 60 50 40 30 20 10
MB
MBMBMB
Add them all up to equal MSB
How many lamp posts to make?
Providing Public GoodsExample with street lights:
MSB
Q 1 2 3 4 5 6
250 200 175 150 125 100 75
MSB
Add them all up to equal MSB
How many lamp posts to make?
Providing Public GoodsExample with street lights:
MSB
Q 1 2 3 4 5 6
250 200 175 150 125 100 75
MSB
Add them all up to equal MSB
How many lamp posts to make?
Providing Public GoodsExample with street lights:
Notice the vertical axis numbers have increased to show
that this single line is all four lines combined
MSB & MSC
Q 1 2 3 4 5 6
250 200 175 150 125 100 75
MSB
MSC = MSB
MSC
MSC = MSB = efficient amount of public goods to make
How many lamp posts to make?
Providing Public GoodsExample with street lights:
The Efficient Quantity of a Public Good?
If MSB (MB) = MC, resources are used efficiently.
If MC < MSB, resources can be used more efficiently by increasing the quantity produced.
If MC > MSB, resources can be used more efficiently by decreasing the quantity produced.
Providing Public Goods
P
Q
MC
MPB
P
Q
MSC
MSBP
EQ
P
EQ
Private goods Public goods
So it’s the same idea, just add “society”
Providing Public GoodsQuestions to understand:
1.) How do you get people to pay for these goods then? 2.) How much public goods should be
produced?3.) What problems happen with producing public goods?
Cost Benefit Analysis
How much is a life worth?
Cost Benefit Analysis
How much is a life worth?
Exactly how many police SHOULD there be? And how
will they be paid for?
Cost Benefit Analysis
How much is a life worth?Is it worth the marginal
cost to have more firetrucks purchased by
the government?
Cost-Benefit Analysis (CBA)
Providing Public Goods
- a study that compares the costs and benefits of providing a public good.
- CBA are imprecise, 不精确 so the efficient provision of public goods is more difficult than that of private goods.
Problem:
- Measuring the benefit is usually difficult and with the free rider issue.
What problems happen with producing public goods?
Providing Public GoodsWhat problems happen with producing public goods?
Asymmetric Information
- Buyers and sellers don’t have equal information. One has more then the other and can cheat the other.非对称信息
Asymmetric Information
非对称信息If one side knows more then the other side they can cheat
them
Providing Public GoodsWhat problems happen with producing public goods?
Asymmetric Information
Moral Hazard
- People who have asymmetric information, and the accuracy of the information they have cannot be monitored 监控 or challenged 挑战 , so they have an incentive to behave differently.
Who will police the police?
Moral HazardHow many is
enough?
If it is your government job to make bridges, would you ever
say, “Ok we have enough bridges now, I don’t need that job
anymore.
Check out China’s Ghost towns.
Moral HazardWho will police
the police?If you rent a car and you don’t
own it.
Moral HazardWho will police
the police?
Insurance 保险And you didn’t have to pay for anything if the car has a
problem…
Moral Hazard
Would you treat it the same as if you owned it and was personally
responsible?
Moral HazardWho will police
the police?
Cost Benefit Analysis
How much is a life worth?
Asymmetric Information
非对称信息
Is it ok to be ignorant? 无知
Providing Public GoodsWhat problems happen with producing public goods?
Asymmetric Information Moral Hazard
Rational Ignorance理性 无知
- The decision not to acquire information because the marginal cost of doing so exceeds the marginal benefit.
Providing Public GoodsWhat problems happen with producing public goods?
Why Government Is Large?
Part of the reason why government is large is Inefficient overprovision of public goodsPeoples’ rational ignorance
Once a bureaucracy 官僚 gets established 既定 , its goal of budget maximization combined with people’s rational ignorance explains why government takes a large proportion of total income.
Classifying Goods and some Problems:1.) Classification and Good
Types3.) Problems of the Non-Excludables2.) Providing Public Goods
Different kinds of goods with different problems
For both Public Goods and Common Resources, Externalities happen because something of value has no price attached to it.
So, private decisions about consumption and production can lead to an inefficient 低效 outcome.
Problems of the Non-Excludables
Why Markets don’t do a good job with these types:
The good is not produced in the market, even if buyers collectively value the good higher than the cost of providing it. Public Goods have these qualities and therefore governments often have to produce them.
Goods that are Non-excludable
-You can’t stop someone else from using it, so you can’t make money off of it and thus are free to use.
Goods that are Non-rivals
- Since there is an infinite supply of these, it is difficult to control and a market with very few suppliers seems “natural”
Result:
Problems of the Non-Excludables
-A person who enjoys the benefits of a good or service without paying for it.
Because of the free-rider problem, the market would provide too small a quantity of a public good.
To produce the efficient quantity, government action is required.
Public Goods –The problem that some don’t pay
Free Rider
Problems of the Non-Excludables
Cost Benefit Analysis
How much is a life worth?
Cost-Benefit Analysis (CBA)
Providing Public Goods
- a study that compares the costs and benefits of providing a public good.
- CBA are imprecise, 不精确 so the efficient provision of public goods is more difficult than that of private goods.
Problem:
- Measuring the benefit is usually difficult and with the free rider issue.
What problems happen with producing public goods?
Moral HazardWho will police
the police?
Cost Benefit Analysis
How much is a life worth?
Asymmetric Information
非对称信息
Common resources have the biggest problem of them all
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Problems of the Non-Excludables
- Since there is a limited supply of these, once they are gone there is no more.
You can’t stop me from consuming the good, and more consumption by me means less of the good available for you.
Why Markets don’t do a good job with these types:
Goods that are Non-excludable
-You can’t stop someone else from using it, so you can’t make money off of it and thus are free to use.
Goods that are Non-rivals
Result:
Problems of the Non-Excludables
- occurs when a user depletes the amount of the common resource available to others but does not take this cost into account when deciding how much to use the common resource.
Common Resources –The Tragic Overuse Problem
Overuse
In simpler words:
Your using too damn much stuff!!!
Problems of the Non-Excludables
Go watch this movie called “The Lorax” it’s
a famous Dr. Seuss children’s book that show the main idea that is the problem.
Common Resources –The Tragic Overuse ProblemOveruse
Tragedy of the Commons公地悲剧
- It is the absence of incentives to prevent the overuse and depletion of a commonly owned resource.
In the case of a common resource, the marginal social cost of my use of that resource is higher than my individual marginal cost
Common resources left to the free market suffer from overuse.
***sustainable - 可持续发展
Problems of the Non-Excludables
Examples – through the earth
Suppose we have three privately owned farms and this upper right
corner is owned by no one.
An example…
And each of these farmers have lots of
sheep.
Now, these sheep eat grass. The sheep can eat the grass on the farm owned by the
farmer…
Or…
They could eat the grass on this empty
land that no one owns. (It’s a free
Common Resource!)
What do you think would happen if all the farmers
decide to take advantage of this?
And what do you think would happen to the land itself?
Land goes to hell right? And in the long run?
All that is left is what the farmers started with the common resource totally
destroyed.
Amount
Sustainability
Tragedy of the Commons 公地悲剧 Sheep Grazing land
Maximum sustainable amount
Sustainability 可持续发展
Problems of the Non-Excludables
Private goods = limited and to make them you need common resources
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Public goods = unlimited and to make them you need common resources Natural Monopolies = unlimited and to make them you need common resources
Result: One big f@%ked up mess that has been passed down to you and it’s your turn to deal with it.
Tragedy of the Commons 公地悲剧 Problems of the Non-Excludables
So to summarize...
Private Goods
Common Resource
Natural Monopolies
Public Goods
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival
Cost-Benefit Analysis (CBA)
Providing Public Goods How much Public Goods should be produced?
- a study that compares the costs and benefits of providing a public good.
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Benefits VS. Marginal Costs 边际效益 针对 边际成本 (MB) (MC)
If MB > MC = It is worth doing 这是值得的If MB = MC = It may be worth doing “a wash” 收支平衡If MB < MC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Social Benefits VS. Marginal Social Costs 边际效益 针对 边际成本 (MB) (MC)
If MSB > MSC = It is worth doing 这是值得的If MSB = MSC = It may be worth doing “a wash” 收支平衡If MSB < MSC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
-A person who enjoys the benefits of a good or service without paying for it.
Because of the free-rider problem, the market would provide too small a quantity of a public good.
To produce the efficient quantity, government action is required.
Public Goods –The problem that some don’t pay
Good Types…a little more detail
Free Rider
Moral HazardWho will police
the police?
Cost Benefit Analysis
How much is a life worth?
Asymmetric Information
非对称信息
Common Resources –The Tragic Overuse ProblemOveruse
Tragedy of the Commons公地悲剧
- It is the absence of incentives to prevent the overuse and depletion of a commonly owned resource.
In the case of a common resource, the marginal social cost of my use of that resource is higher than my individual marginal cost
Common resources left to the free market suffer from overuse.
***sustainable - 可持续发展
Problems of the Non-Excludables
The end of part 2 Thanks