Lecture 25 - Apr 27 - Public Goods, Efficient Provision of Public Goods, Implementation Problems, Co

Lecture 25 - Apr 27 - Public Goods, Efficient Provision of Public Goods, Implementation Problems, Co

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1 Economics 100A Lecture #25: Tuesday, Apr 27 1) Public goods (and bads) 2) Efficient provision of public goods 3) Implementation problems 4) Common property resources 5) Summary of external effects
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2 (1) Public goods and bads Notion of a public good/bad Benefits (costs) spill over to the entire population Difficult/impossible to prevent people from consuming it Examples Public goods: national defense, vaccines, medical breakthrough Public bads: nuclear fallout, destruction of the ozone layer
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3 Features of public goods/bads Rivalrous : extent to which one person’s consumption of a good prevents another from also consuming the same Exclusivity : ease with which others can be excluded from consuming the good
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4 Examples of public goods & bads National defense UV radiation from sun Over the air broadcasts NB: a/k/a “public good/bad” Scrambled cable/satellite TV and radio broadcasts Copy protected CDs & DVDs NB: a/k/a “club good” Non- rivalrous Public parks Fishing grounds Email (spam) NB: a/k/a “common property resource” Hot dog Hair cut Hair shirt Rivalrous Non-exclusive Exclusive
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5 Pure and impure public goods A “pure” public good non-rivalrous and non-exclusive enters everyone’s utility equally: U 1 (X 1 ,G), U 2 (X 2 ,G), . .. Positive benefits: dU i /dG > 0 for all i (< 0 for a “bad”) A “local” public good Public good but only for consumers “near by” Example: lighthouse, city park, attractive garden Other “impure” public goods Anything with a positive consumption externality for some but not all consumers Network goods: value increasing or decreasing with # users Club goods: exclusive but with congestion Information goods: non-rival and partially exclusive
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6 Network goods Externality among users connected to a real or virtual network User value increases or decreases with # of connected users Each new subscriber benefits current subscribers (e.g., another person to call, one more car on the highway) But new subscribers ignore the spillovers A simple set up Valuations of users: U i (x i , n) where x i = 0 or 1 (depending on whether join) n = # of users Beneficial if: dU i /dn > 0 Congestion if: dU i /dn < 0 Efficiency issues How price access to the network?
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Lecture 25 - Apr 27 - Public Goods, Efficient Provision of Public Goods, Implementation Problems, Co

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