Chapter19

Chapter19 - Department of Agricultural and Resource...

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Department of Agricultural and Resource Economics EEP 101/ECON 125 University of California at Berkeley David Zilberman BIODIVERSITY, BIOTECHNOLOGY, AND INTELLECTUAL PROPERTY RIGHTS Topics Public Goods Global Public Goods Knowledge as a Public Good Innovation Process Alternative Forms of Intellectual Property Rights Technology Transfer from the Public to the Private Sector Neglected Crops and Orphan Drugs Elements of the Strategy to Provide Orphan Drugs and Address Neglected Diseases Public Institutions of Intellectual Property Rights in the Developing World Public Goods Public goods are defined as goods with two properties: nonrivalry , i.e., it can be utilized by many people simultaneously, and nonexcludability , i.e., there are no barriers to utilizing these public goods. Like many other goods, production of public goods is costly. Markets left on their own tend to underinvest in public goods because each individual has a tendency to free ride and expect others to pay for the public good so he can benefit from it for free. Let D 1 be demand of one person, D 1+2 demand of two people, etc.
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2 The optimal quantity is Q* . At this level, marginal cost is equal to the sum of the marginal benefits of the consumers. As we mentioned earlier, this outcome will not be attained by the market and requires government intervention. The government uses taxation to finance public goods, but society develops other mechanisms to provide for public goods. At the national level, the national defense is used as an example of a public good. Within a city, environmental quality (clean air) is a public good. However, even with this example, we see some of the problematic features of this notion, since some neighborhoods have cleaner air than others. Therefore, when there is differentiated access to a good that has nonrivalry of consumption, then there are differences in private benefits, and people will pay for the access. When the access to a good with nonrivalry of consumption is blocked, the private sector will have the incentive to provide this access. One example is a football stadium. When the owner of a football stadium prevents access through an entry fee, he/she has the incentive to provide these goods. Actually, in a situation where you have nonrivalry of consumption but excludability, you may have a situation where the party controlling the access may capture the entire social surplus. When there is heterogeneity in benefits derived from goods with nonrivalry of consumption, the resource owner who charges a entry fee may underprovide the good, unless he charges a differentiated price that will reflect an individual’s willingness to pay for access to the good. Without the ability to charge differentiated prices, the owner may build a smaller facility and charge a higher price to tap the richer members of the community. In
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3 this case, there will be little access to goods with nonrivalry of consumption to the poor. In many cases (again, in the case of a sports stadium) there are
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This document was uploaded on 02/03/2011.

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Chapter19 - Department of Agricultural and Resource...

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