Chapter 27

Chapter 27 - Chapter 27 Public Goods In Chapter 21, we...

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Unformatted text preview: Chapter 27 Public Goods In Chapter 21, we introduced the idea of an “externality” – which arises when one individual’s action directly affects another individual. We did so in the context of competitive markets, with pollution serving as our motivating example. With some game theory developed, we now return to the topic of externalities to consider some strategic issues that arise as we think of a particular type of externality problem that involves the provision of public goods . A public good is a good that can be consumed by more than one individual at a time, while a private good is a good that can only be consumed by a single individual. When I take out my lunch sandwich, I can take a bite or I can let you take a bite – but there is no way that both of us can take the same bite (unless we want to think of some really gross scenarios). The sandwich bite is what economists call “rivalrous” – and this rivalry is what characterizes private goods. When I launch some fireworks out of my backyard, on the other hand, both you and I can enjoy the same fireworks display without either of us taking away from the enjoyment of the other. The fireworks display is therefore what economists call “non-rivalrous” – and this non-rivalry is what characterizes public goods. While we will in this chapter often consider the extreme cases of non-rivalry and rivalry, we will also point out that it is actually more appropriate to think of goods as lying somewhere on a continuum between complete rivalry and complete non-rivalry. Complete non-rivalry would mean that we can keep adding additional consumers, and no matter how many we add, each new consumer can enjoy the same level of the good without taking away from the enjoyment of others. National defense is a good example of such an extreme: The national defense system of the U.S. protects the entire population, and as new immigrants join the population or as new citizens are born, these additional “consumers” can enjoy the same level of protection that current citizens enjoy without making current citizens less safe from external threats. But if my city’s population increases, we will need to get more police officers to keep public safety constant – which means that local public safety is not as non-rivalrous as national defense. Neither are my fireworks as non-rivalrous as national defense. As my neighbor, you can enjoy my fireworks display without taking away from my enjoyment, but if we keep having others come and watch the fireworks, eventually they will be farther away and can’t enjoy them to the same extent as you and I. Or you and I can probably enjoy the same large swimming pool without taking away from each other’s enjoyment, but as more people join, things will get “crowded” and our enjoyment falls as new consumers come on board....
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This note was uploaded on 04/07/2008 for the course ECON 55 taught by Professor Rothstein during the Fall '07 term at Duke.

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Chapter 27 - Chapter 27 Public Goods In Chapter 21, we...

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