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Unformatted text preview: enefits, so the individual contributes less than the efficient amount Unlike private providers, the government has the ability to solve the free rider problem by forcing people to pay taxes to cover the cost of providing the public good. The government can throw people in jail if they don't pay taxes The government's monopoly on coercive power helps it carry out the task of providing public goods One solu1on: Public provision Es1mate social costs and benefits, if B>C, then provide. In prac1ce it can be difficult for the government to provide the socially op1mal quan1ty (either itself or through a private contractor) Hard to measure the costs and benefits of public projects. May not be able to determine the socially op1mal quan1ty very accurately. Public provision may "crowd out" private provision. Thus, there may not be a large net gain in the total quan1ty provided. People have an incen1ve not to truthfully reveal how much they value a public good, because people with high marginal benefits may be asked to pay a greater share It may be possible to get around this problem by designing "truth-telling mechanisms," which are ways of calcula1ng taxes that do not penalize people for truthfully revealing their marginal benefits 7 One truth-telling mechanism used in auc1ons: Vickrey auc1ons...
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This note was uploaded on 01/18/2012 for the course PADP 6950 taught by Professor Fergi during the Spring '11 term at University of Georgia Athens.
- Spring '11