This is a primary justification for the existence of PUBLIC SECTOR (Government.) COMMUNAL GOODS (Common Resources) (Non excludable and rival in consumption) Garrett James Hardin (1915 – 2003): The tragedy of the commons: "the damage that innocent actions by individuals can inflict on the environment" A common resource is nonexcludable and rival in consumption: you can’t stop me from consuming the good, and more consumption by me means less of the good available for you. Examples: fisheries, forests, ... In each of these cases, the fact that the good, though rival in consumption, is nonexcludable poses a serious proble The Problem of Overuse (renewable Resource of Overexploitation) COMMUNAL GOODS / THE PROBLEM OF OVERUSE Common resources left to the free market suffer from overuse. Overuse occurs when a user depletes the amount of the common resource available to others but does not take this cost into account when deciding how much to use the common resource. 1.12 MgB i = MgB society MgBMgB MgB society = MgC
In the case of a common resource, the marginal social cost of my use of that resource is higher than my individual marginal cost or the cost to me of using an additional unit of the good. Overfising THE EFFICIENT USE AND MAINTENANCE OF A COMMON RESOURCE To ensure efficient use of a common resource: “society must find a way of getting individual users of the resource to take into account the (unwitting) costs they impose on other users” Like negative externalities, a common resource can be efficiently managed by: -a tax or a regulation imposed on the use of the common resource (Pigouvian Tax) -making it excludable and assigning property rights to it. -creating a system of tradable licenses for the right to use the common resource. COLLECTIVE GOODS OR ARTIFICIALLY SCARCE GOODS A collective good or an artificially scarce good is excludable but nonrival in consumption. Because the good is nonrival in consumption, the efficient price to consumers is zero. A good is made artificially scarce because producers charge a positive price, which leads to inefficiently low consumption. The marginal cost of allowing one more person to consume the good is zero. The problems of artificially scarce goods are similar to those posed by a natural monopoly (ex. Medicine patents) 1.13 MgC i < MgC society
EXTERNALITIES An external cost is an uncompensated or collateral cost that an individual (consumption) or firm (production) imposes on others.
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- Fall '17
- Miquel Joan
- Supply And Demand, Tragedy of the Commons, World Trade Organization, Externality, Ronald Coase, renewable Resource of Overexploitation