Chapter 27

Chapter 27 - Chapter 27 Public Goods A public good is a...

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Unformatted text preview: Chapter 27 Public Goods A public good is a good that can be consumed by more than one individual at a time, while a private good is a good that can be consumed by only a single individual. 1 When I take out my lunch sandwich, I can take a bite or I can let you take a bite but there is no way that both of us can take the same bite (unless we want to think of some really gross scenarios). The sandwich bite is what economists call rivalrous and this rivalry is what characterizes private goods. When I launch some fireworks out of my backyard, on the other hand, both you and I can enjoy the same fireworks display without either of us taking away from the enjoyment of the other. The fireworks display is therefore what economists call non-rivalrous and this non-rivalry is what characterizes public goods. As we will see, this gives rise to particular kinds of externalities because I might not consider the benefits you get from my fireworks as I decide how big to make them. In our discussion of public goods, we therefore return to a topic we partially covered in Chapter 21, but we do so now with the benefit of some game theory tools from Chapter 24. While we will often consider the extreme cases of non-rivalry and rivalry, we should start by pointing out that it is actually more appropriate to think of goods as lying somewhere on a con- tinuum between complete rivalry and complete non-rivalry. Complete non-rivalry would mean that we can keep adding additional consumers, and no matter how many we add, each new consumer can enjoy the same level of the good without taking away from the enjoyment of others. National defense is a good example of such an extreme: The national defense system of the U.S. protects the entire population, and as new immigrants join the population or as new citizens are born, these additional consumers can enjoy the same level of protection that current citizens enjoy without making current citizens less safe from external threats. But if my citys population increases, we will need to get more police officers to keep public safety constant which means that local public safety is not as non-rivalrous as national defense. Or you and I can probably enjoy the same large swimming pool without taking away from each others enjoyment, but as more people join, things will get crowded and our enjoyment falls when new consumers come on board. Even my TV in my living room is non-rivalrous to some extent, but my living room gets crowded even more quickly than our local swimming pool. The degree of non-rivalry then characterizes the degree to which we think of a good as being a public good. My sandwich bite is on one extreme end of the spectrum with even one other person 1 This chapter employs basic game theory concepts from Section A of Chapter 24 and refers frequently to our analysis of externalities in Chapter 21. Chapters 25 and 26 are not required for this chapter. 1060 Chapter 27. Public GoodsChapter 27....
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Chapter 27 - Chapter 27 Public Goods A public good is a...

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