1 / 13

Public Goods and Public Choice

Public Goods and Public Choice. Public Goods. Private goods Rival in consumption Exclusive Provided by private sector Public goods Nonrival in consumption Nonexclusive Provided by government. Public Goods. Natural monopoly Nonrival but exclusive With congestion: private goods

michel
Download Presentation

Public Goods and Public Choice

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Public Goods and Public Choice

  2. Public Goods • Private goods • Rival in consumption • Exclusive • Provided by private sector • Public goods • Nonrival in consumption • Nonexclusive • Provided by government

  3. Public Goods • Natural monopoly • Nonrival but exclusive • With congestion: private goods • Provided by private sector or government • Open-access good • Rival but nonexclusive • Regulated by government

  4. Exhibit 1 Categories of Goods

  5. Optimal Provision of Public Goods • Nonrival in consumption • Once produced: available to all consumers • Market demand curve • Vertical sum of individual demand curves • Marginal benefit • Efficient level of public good • Market demand curve intersects marginal cost curve

  6. Exhibit 2 Market for Public Goods Because public goods, once produced, are available to all in identical amounts, the demand for a public good is the vertical sum of each individual’s demand. Thus, the market demand for mosquito spraying is the vertical sum of Maria’s demand, Dm, and Alan’s demand, Da. The efficient level of provision is found where the marginal cost of mosquito spraying equals its marginal benefit. This occurs at point e, where the marginal cost curve intersects the market demand curve, D. Dollars per hour D Marginal cost e Da $15 10 Dm 5 D Hours of mosquito spraying per week 0 2

  7. Paying for Public Goods • Public goods are paid for through taxation. • Some households have greater ability to pay taxes than others • Efficient, but not fair • Free-rider problem • People try to benefit from the public goods without paying for them

  8. Rent Seeking • Rent seeking • Activity special-interest groups undertake • To secure special favors from government • No incentive for economic efficiency

  9. Campaign finance reform • Special-interest money • Donated by special-interest groups • Soft money • Allows political parties to raise unlimited amounts from individuals, corporations, and labor unions • To spend it freely on party building activities

  10. The Underground Economy • The underground economy • Unreported market activity • To avoid taxes • Illegal • Tax avoidance • Legal - Pay least possible tax • Tax evasion • Illegal - No or fraudulent tax return

  11. The Underground Economy • Underground economy grows more when: • Government regulation increase • Tax rates increase • Government corruption is more widespread • Estimated: $1.5 trillion in 2010

  12. Bureaucracy • Bureaus • Government agencies • Charged with implementing legislation • Financed by appropriations from legislative bodies • Receive less consumer feedback • Less incentive to act on any feedback • Less incentive to eliminate waste and inefficiency

  13. Bureaucracy in Repr. Democracy • Bureaucratic objectives • Serve the public • Maximize budget • Larger budget than desired by median voter • Private vs. public production • Private production – may be more efficient • Public production – preferred by public officials

More Related