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Chapter 7: Public goods, Slides of Public finance

Danang College of Technology (DCT)Public finance

explain why and how the government provide public good, role of the private sector of public goods

Typology: Slides

2018/2019

Uploaded on 03/13/2019

Ngoctra2008
Ngoctra2008 🇻🇳

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Can private producers overcome
the free rider problem ?
_ The free rider problem does not lead to a
complete absence of private provision of public
goods.
_ The private sector can in some cases
combat the free rider problem to provide public
goods by charging user fees that are
proportional to their valuation of the public
good.
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Download Chapter 7: Public goods and more Slides Public finance in PDF only on Docsity!

Can private producers overcome

the free rider problem?

_ The free rider problem does not lead to a complete absence of private provision of public goods.

_ The private sector can in some cases

combat the free rider problem to provide public goods by charging user fees that are proportional to their valuation of the public

good.

EXAMPLE

 If someone builds a lighthouse, all sailors will benefit from its illumination –

even if they don’t pay towards its upkeep.

 Cleaning a common kitchen area. It would be good if we all contributed to

cleaning the kitchen but there is a temptation to leave for someone else –

who will do it all for us.

EXAMPLE

 During the 1980s, New York City’ Times Square had high crime and many social

problems. The city had given up on cleaning up Times Square

 In 1992, local businessmen stared a BID- a legal entity that privately provides

local services and funds these services with fees charged to local businesses.

 New York law make participation of businesses compulsory if BID organizers

can get 60% of local businesses to join, allowing the organizers to overcome the

free- rider problem

 The BID was clear success in New York City

When is Private Provision likely to overcome the Free Rider Problem 1 Some Individuals care more than others 2 Altruism 3 Warm Glow

Private provision is particularly likely to solve the free rider problem when some individuals really need the pubilc goods Some Individuals care more than others

ALTRUISTIC

Warm-Glow

Private provision is particularly likely to solve the free rider problem when some individuals really need the pubilc goods When individuals value the benefits and costs to others in making their consumption choices A model of the public goods provision in which individuals care about both the total amount of the public good and their particular contributions as well Warm-Glow

  • (^) Crowd-out: The government provides more public goods, which reduces the contribution from the private sector.
  • (^) Warm glow: If people care about contributions per se, they may continue to contribute even when the government contributes.
  • (^) Evidence on crowd-out: Mixed. o (^) No evidence for full crowd-out o (^) No consensus on the size of this important individual response to government intervention Private Responses to Public Provision: The Problem of Crowd-Out

CHAPTER 7- PUBLIC GOODS

Optimal public good provision requires knowing the MRS for each person. Measuring the Costs and Benefits of Public Goods

CHAPTER 7- PUBLIC GOODS

Solutions Encourage private sector provide public goods Requiring citizens to involve in comsuming public good Require a fixed fare for specific public good

Call for other

countries support

in science, tech-

nology and

finance in

providing public

goods

  • (^) A major function of governments at all levels is the provision of public goods.
  • (^) Sometimes, the private sector can provide public goods, but usually not the optimal amount.
  • (^) Government intervention can potentially increase efficiency.
  • (^) Success of intervention depends on: o (^) Ability of government to measure costs and benefits o (^) Ability to implement optimal plan CONCLUSION