Lecture 23 - ECONOMICS 100A Professor Dan Acland 11/16/10...

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ECONOMICS 100A Professor Dan Acland 11/16/10 Lecture 23 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy, or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. TURN IN PROBLEM SET #5 ICLICKER QUIZ ANNOUNCEMENTS Slide : Announcements 1. Problem Set #6 will be posted by the end of the week. (I am writing it myself.) 2. Midterm solutions will be posted by the end of the weekend. 3. Grading: a. Final grades will not be assigned according to a strict curve. “A” work will receive an “A”, etc. i. Note: This is not a change from the syllabus. The grading distribution from past semesters is never more than a rough guide for assigning grades. b. The final exam will be worth 30% (instead of 20%) and each student will then drop ten percentage points from the weakest component of their grade. LECTURE Slide : Lecture outline: 1. Pure public goods: non-rivalrous and non- excludable. 2. Social optimality versus the market. 3. Market equilibrium as a simultaneous-moves game with a continuous action space. 4. Eliciting true MWTP: mechanism design. Slide : 1. Pure public goods A good is non-rivalrous if a single unit of the good can be “consumed” by an unlimited number of people. o This is why public goods are said to have a positive externality. If I purchase and consume one unit, you gain a benefit also. o However, unlike a private good with a positive externality, with a non-rivalrous good, the benefit I get from your consumption is not just some secondary benefit, but it is actually exactly the same benefit I would get from my own consumption. A good is non-excludable if there is no way to prevent people from consuming it. o This is why public goods are said to involve a prisoner’s dilemma. If I know I can get the full benefit of consumption from your purchase of the good, why should I bear the cost myself? For both of these reasons, markets are likely to supply too little of a public good, if any at all. The first thing is two terms that were on the quiz. Let me say this about public goods, and it’s true for externalities as well: you might get the impression that what is an externality and what is a public good is strictly defined, but it turns out it’s remarkably difficult to define it. I think Nechyba does a reasonably good job showing you that there is a broad range of public goods. Like almost everything else we’ve studied this semester, you’ll see that the real world doesn’t break down into these categories that we want it to. To keep it simple, I’m going to talk about the case
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Lecture 23 - ECONOMICS 100A Professor Dan Acland 11/16/10...

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