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ECO 481: Public Choice Theory

ECO 481: Public Choice Theory. Week 5 – Part I: Free & Forced Riders,. Dr. Dennis Foster. The Supply Problem. $. So, what is Q2? So, how do you decide on payment? Tax can’t be equal can it? Do we know “willingness to pay?”. costs. pub. benefits. pri. benefits. Quantity. Q1 Q2.

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ECO 481: Public Choice Theory

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  1. ECO 481:Public Choice Theory Week 5 – Part I:Free & Forced Riders, Dr. Dennis Foster

  2. The Supply Problem $ • So, what is Q2? • So, how do you decide on payment? • Tax can’t be equal can it? • Do we know “willingness to pay?”. costs pub. benefits pri. benefits Quantity Q1 Q2 We can “imagine” the optimal level. There still will be free riding.

  3. The Supply Problem • In market, we adjust Q to make MB=MC. • There are very few purely public goods. • Markets try to transform in quasi-private goods. • TV, radio, fenced in rangeland. • Political determination of differing preferences. • Nobody gets what they want! • Probably lessens WTP. • “If everyone is unhappy…”

  4. The Supply Problem Too much or too little? • If benefits are long-run, under provide. • If costs are long-run, over provide. • If public accepts “publicness” and financing tied to production, outcome is likely close to “optimal.” • Producers of public good biased towards too much. • Pentagon example • Schools and bus systems • Goldwater report.

  5. Privatizing Final Thought – The bankrupt city (Stockton) • Road pricing in Hong Kong. • Singapore & London. • Private roads- Stossel video • Private parks? • Meteor Crater, Mt. Vernon, Grand Canyon Caverns. • Education - vouchers as start. • “Merit goods?” • Flagstaff: “amenities.”

  6. ECO 481:Public Choice Theory Week 5 – Part II: PrivateProperty Dr. Dennis Foster

  7. What are property rights? The case of Kuapa Pond. • Attributes of economic goods • A “bundle of rights.” • A set of behavioral rules. • Defined • Defendable • Divestible • A human right (!) • Alchian

  8. Property types • Open access common property • First come, first served. • Tragedy of the Commons • Common property • Limited set of owners! • “Common-pool resources” & Ostrom • Fisheries, grazing land, elephants. • Private property • Coase Theorem, how to deal with externalities • “Without property rights, there are only two solutions to conflict over scarce resources: violence or politics.”

  9. Establishment of rights • Natural rights • Locke, rights pre-date government. • Role of gov’t. is to protect these rights. • Ryan & rights • Utility-based • Government regulations … taxing, banning, controlling • AZ sales tax, kidney sales, eminent domain • Kelo v. New London (video); AZ case • Wetlands (Stossel video; 7 min. mark) • “Rent extraction” as ultimate threat.

  10. ECO 481:Public Choice Theory Week 5: – Part I: Free & Forced RidersPart II: Private Property Dr. Dennis Foster

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