Chapter 14 Common Property and Public Goods Steven

Chapter 14 Common Property and Public Goods Steven Landsburg, University of Rochester Copyright © 2005 by Thomson South-Western, a part of the Thomson Corporation. All rights reserved. Landsburg, Price Theory and Applications, 6 th edition

Introduction • Property rights and efficiency • Common property – Ownership question – Negative externality • Public goods – Cost of provision of additional units – Positive externality Landsburg, Price Theory and Applications, 6 th edition 2

Tragedy of the Commons • Springfield Aquarium as common property • Dissipation of rents – Tragedy of the commons – Social gains eliminated due to overuse • Admission fees – Graphical analysis • Private ownership Landsburg, Price Theory and Applications, 6 th edition 3

EXHIBIT 14. 1 The Dissipation of Rents Landsburg, Price Theory and Applications, 6 th edition 4

Difference Pays • Tastes differ • Dissipation of rents – Social gains • Sub-optimal outcome • Public versus private ownership Landsburg, Price Theory and Applications, 6 th edition 5

EXHIBIT 14. 2 Gains from an Aquarium Whose Visitors Are Not Identical Landsburg, Price Theory and Applications, 6 th edition 6

Common Property • Maintenance and improvement • Fishery example • Optimal activity levels – Admission fees – Splitting the check example Landsburg, Price Theory and Applications, 6 th edition 7

Public Goods • Good where one person’s consumption increases consumption available for others – Nonexcludable – Nonrivalrous Landsburg, Price Theory and Applications, 6 th edition 8

Market Failures • Private markets and social efficiency • Nonexcludability – Free riding • Nonrivalry Landsburg, Price Theory and Applications, 6 th edition 9

Provision of Public Goods • Nonexcludable and nonrivalrous • Government role in provision of good – Impose tax – Vote – Value of good • Clarke tax • Alternative mechanisms • Clean air example Landsburg, Price Theory and Applications, 6 th edition 10