Collective Goods and Service Public Finance 3 Collective

Collective Goods and Service Public Finance - 3

Collective Goods and Service • We shall examine the basis for the rise of government even under idealistic market condition. • Lets assume a hypothetical society of fishermen living in isolated island. • After experience of having several boats run on surrounding rocks, the need for a lighthouse become clear. • The lighthouse will be of a benefit to each fisherman. • But the private market economy, might not get the lighthouse built. Because the enterprising individual has no way of restricting the usage of his product. • He could not sell individual share of the benefit to the separate fisherman.

Collective Goods • The distinguishing characteristic of the collective or public good is the indivisibility of services among separate persons. • Which mean non-exclusive: particular individuals may not be excluded from the benefits without undue cost. • Another characteristic non-rival consumption. The amount consumed by one person do not effect the amount to be consumed by others.

Organize Collectively • The sensible manner for the community of fishermen to secure the light house is to organize collectively. • For this to happen either the fishermen must have the right to force an unreasonable man to move off the island , or the must be no really unreasonable men present. • If neither of these condition is met the voluntary arrangement may break down. • It is the likelyhood that a free rider will be present that makes political , or governmental action necessary in many cases.

The Range of Collective Goods • The common defense: defense against external enemies (indivisible). Protection is equally available to all Saudi citizens. • Law and order: Internal defense • Environmental control: to prevent the creation of “public bads”. To reduce air and water pollution, to reduce noise, to conserve natural resources, to reduce congestion. • Monetary Stability: reduce inflation • Regularly Measure: Traffic reguilation, food and drug laws

Political boundary and indivisibility • The boundaries of the political units may not, coincide with the range of individuality characterizing a genuinely collective good or service. • The range of indivisibility may be considerably more limited than that indicated by the boundaries of the political unit.