Public Goods,   G ch. 7

 

Want to EXPLAIN WHY particular goods are publicly provided.

 

A Public Good is defined by PREFERENCES + TECHNOLOGY,

 

NOT BY WHETHER OR NOT IT IS PUBLICLY PROVIDED.

 

Examples:  Bridges,  military,  legal system

 

Governments provide other (private) goods:  education.

 

Some public goods are provided privately:  TV broadcasts.

 

CHARACTERISTICS OF PUBLIC GOODS

 

1.  NONRIVAL:  Providing to another agent does not reduce benefit to others.

 

Private goods are RIVAL:  if one agent benefits from them, others can’t.

 

2.  NONEXCLUDABLE:  Costly to exclude users once it is provided.

 

Example:  Fireworks.

 

A PURE PUBLIC GOOD IS NONRIVAL AND NONEXCLUDABLE.

 

 

More Public Goods:   Honesty,    Income Distribution,    Research Output

 

Private provision of public goods:   Broadcasts, Transit,  Communications

 

Public provision of private goods:  Education, Parks, Power, Airlines, Renault

 

 

Efficient Provision of Private Goods without externalities:

MRS = price = marginal cost,    holds in competitive equilibrium.

 

 

Efficient Provision of Pure Public Goods:  Sum of MRS's = marginal cost.

 

 

Private provision is typically too low.     FREE RIDERS: benefit without paying.

 

Examples:  Gnutella file-sharing.  70% of downloaders never contribute.

Sematec research.

 

Exceptions:  bundling in broadcasting,  cooperation in British lighthouses.

 

Public provision often less efficient than private:

15% higher cost in Renault, Air France.

 

Canadian public railroads, U.S. parks have costs similar to private firms.

 

Public provision cheaper:  SS annuities less than 1/10 the admin. cost of private.

Large scale with increasing returns.

 

Problem with public provision: lack of competition?   Phoenix garbage collection.

 

Education publicness:    MC/AC < 1, but not very small.

 

Students get positive average return.

 

Other publicness:  Common background,  political awareness,  docility

 

*Research externality,     buyer as input,      education as signal.

 

*Local Public Goods

 

Example:  Public education can reduce education expenditure.

Expenditure effective?  Exp/pupil  doubled since 1970,  SAT's fell.

 

Rise in expenditure on special ed,   language,  administration.

Rise in experienced teacher pay,   fall in new teacher pay.

 

High return to early education expenditure,   Heckman (NBER 7288, 1999).

 

Milwaukee Charter school experiment:  charter students do slightly worse,

traditional public school students do slightly better.

 

Vouchers:  Effects depend on parents' decisions and schools' reactions.

 

Issue:   Separation of church and state.

 

Debate over Hoxby (2002)  “public schools improve with competition.”

 

SUMMARY

 

1.  Pure public goods:  nonrival and nonexcludable.

 

Many impure public goods (somewhat nonrival).

 

2.  Public goods may be privately provided.

 

3.  Private goods may be provided by governments.

 

4.  Efficient provision of private goods without externalities:

 

MC = MRS = Marginal willingness to pay for every consumer

 

5.  Efficient provision for pure public goods:

 

MC = Sum of MRS's = total of consumers' marginal willingnesses to pay

 

6.  Education:  mostly private, produces some partly public goods.