Assigment 2 Q+A

What happens when the public sector provides them the

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: tial producers understand this and thus will not produce them unless they can find some means to elicit contributions. Example: If the lighthouse shows ships to harbour, and the owner of the harbour owns the lighthouse then he can charge extra for the harbour facilities and that way make a profit on the lighthouse. This only works if there are no competing harbours that could provide the services at lower cost free riding on the lighthouse owner’s provision of the lighthouse. Thus political protection of monopoly rights is important. But once again some ships will benefit from this lighthouse, so this business may not work. What happens when the public sector provides them? The first problem is that, given the fact that public goods are not sold in a free market, government planners do not have "full knowledge of individual preference functions", then it's likely that public goods will be under or over supplied. An example of an oversupplied public good would be the Christmas lights in the streets as it would be possible that a big part of the inhabitants of a city would not care of them, as a matter of a fact, I don’t. Second problem is that because public goods are non ­excludable and non ­rivalrous, it's possible for people to benefit from a public good without having to help contribute to its production. This problem is known as the “Free rider” problem, which is a situation in which individuals or organizations consume more than their fair share of a resource. Finally, since politicians have self ­interests like being elected, they may use public goods to get more votes and not to maximize the social utility. Additionally, many public goods works take a long time to materialize, much longer than the time horizon of the regular politician. This can incentivize them toward flashy short term projec...
View Full Document

This document was uploaded on 03/10/2014 for the course AECO 1330A at Sciences Po.

Ask a homework question - tutors are online