lec13slides - Public Goods Consumption is exclusive Private...

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1 3 Public Goods Consumption is exclusive Private good. Consumption is not exclusive Public good. 5 Socially optimal output for private good: P = MC That is: Willingness of one person to pay for an extra unit = Cost of an extra unit
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2 7 Socially optimal output for a public good Let P i denote the amount that person i is willing to pay for an extra unit. Σ P i = MC That is: The amount that all people are willing to pay in combination for an extra unit = cost of an extra unit 10 Example: Parkland in Berkeley Willingness to pay for an extra acre Ken Train $10 Roberto Calvo $15 Clara Wang $13 Total: $354,000 Should buy extra acre if it costs $354,000 or less. Pay for acre by charging each person their willingness to pay.
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3 15 Problem: People will not reveal their willingness to pay. Each person correctly knows that his/her contribution will not affect the outcome. Example: I report willingness to pay of $0. Total willingness to pay of all people combined declines by $10.
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