ECO 481 Public Choice Theory Week 5 Part

ECO 481: Public Choice Theory Week 5 – Part I: Free & Forced Riders Part II: Private Property Dr. Dennis Foster

Part I: Free & Forced Riders The Supply Problem • We can “imagine” the optimal level. • There still will be free riding. $ • What is Q 2? costs • How do you decide on payment? • Tax can’t be equal can it? pub. benefits Tax P* ? • Do we know “willingness to pay? ”. pri. benefits Q 1 Q 2 Quantity

The Supply Problem • In market, we adjust Q to make MB=MC. • There are very few purely public goods. • Markets try to transform in quasi-private goods. – TV, radio, fenced in rangeland. • Political determination of differing preferences. • Nobody gets what they want! • Probably lessens WTP. • “If everyone is unhappy…”

The Supply Problem Too much or too little? • If benefits are long-run, under-provide. • If costs are long-run, over-provide. • If public accepts “publicness” and financing tied to production, outcome is likely close to “optimal. ” • Producers of public good biased towards too much. – Pentagon example. [And, here. ] – Schools and bus systems – Goldwater report.

Privatizing • Road pricing in Hong Kong. – Singapore & London. • Private roads? • Private parks? – Mt. Vernon, Monticello, Bryant Park. • Education - vouchers as start. • “Merit goods? ” – Flagstaff: “amenities. ” Final Thought – The bankrupt city (Stockton, then bankrupt, and continuing woes)

Part II: Private Property What are property rights? • Attributes of economic goods – A “bundle of rights. ” • A set of behavioral rules. – Defined – Defendable – Divestible • A human right (!) – Alchian The case of Kuapa Pond.

Property types • Open access common property – First come, first served. – Tragedy of the Commons • Common property – Limited set of owners! – “Common-pool resources” & Ostrom • Fisheries, grazing land, elephants. • Private property – Coase Theorem, how to deal with externalities “Without property rights, there are only two solutions to conflict over scarce resources: violence or politics. ”

Establishment of rights • Natural rights – Locke, rights pre-date government. • Role of gov’t. is to protect these rights. – Hobbes: the social contract requires that we submit to authority. – Napolitano & rights – Ryan & rights • Utility-based – Government regulations … taxing, banning, controlling • • AZ sales tax, kidney sales, eminent domain Kelo v. New London (video) Wetlands (Stossel video; 7 min. mark) “Rent extraction” as ultimate threat.

ECO 481: Public Choice Theory Week 5 – Part I: Free & Forced Riders Part II: Private Property Dr. Dennis Foster