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18
CHAPTER
DYNAMIC P OWERP OINT™ S LIDES BY S OLINA L INDAHL
Public Goods and the
Tragedy of the Commons
CHAPTER OUTLINE
Four Types of Goods
Private Goods and Public Goods
Nonrival Private Goods
Common Resources and the Tragedy of
the Commons
For applications, click here
To Try it!
questions
To
Video
Food for Thought….
Some good blogs and other sites to get the juices flowing:
SEE THE INVISIBLE HAND
Armageddon Time? A 2.9 mile asteroid
narrowly missed earth in 2004
Who will deflect asteroids like Toutatis if
there’s no profit in it? Watch a news clip here
Four Types of Goods
Goods can be classified as:
Non-excludable: When people who don’t pay
cannot be easily prevented from using a good
Example: National defense
Non-rival: When one person’s use of a good does
not reduce the ability of another person to use
the same good
Example: Digital music
Asteroid deflection is both non-excludable and
nonrival.
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Four Types of Goods
Excludable: When people who don’t pay can be
easily prevented from using a good
Example: Jeans
Rival: When one person’s use of a good reduces
the ability of another person to use the same
good
Example: Cheeseburger
Your Happy Meal: both excludable and rival. B
A CK
T O
Try it!
Characterize each of the following
items as excludable or nonexcludable.
I. Central Park, New York
II. Cable television
a)
b)
c)
d)
Both I and II are excludable.
I is excludable, II is nonexcludable.
I is nonexcludable, II is excludable.
Both I and II are nonexcludable. To next
Try it!
Four Types of Goods
Four Types of Goods
Excludable
Non-excludable
Rival
Private Goods
Common Resources
Non-rival
Nonrival Private Goods
Public Goods
Jeans
Hamburgers
Contact Lenses
Cable TV
Wi-Fi
Digital Music
Tuna in the Ocean
The Environment
Public Roads
Asteroid Deflection
National Defense
Mosquito Control
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Try it!
The Chinese language is best
characterized as a:
a)
b)
c)
d)
private good
nonrival private good
common resource
public good
To next
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Try it!
In your opinion, is a college course
generally excludable? (i.e. if your class
has more students, do you get a worse
education on average?)
a) Yes
b) No
To next
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Private Goods and Public Goods
1. Private Goods are excludable and rival.
Most goods are private goods.
Private goods can be efficiently provided in
competitive markets.
Because they are excludable, there is a strong
incentive to pay for and produce them.
Because they are rival, excludability does not
lead to inefficiency.
The only people excluded from consuming a private
good in a competitive market are those who are not
willing to pay.
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Private Goods and Public Goods
2. Public Goods are non-excludable and
non-rival.
Because they are non-excludable, it is difficult to
get people to pay for them voluntarily.
Because they are non-rival, production costs do
not significantly change with additional users.
A classic example.
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Private Goods and Public Goods
A Free Rider enjoys the benefits of a
public good without paying a share of the
costs.
Free riders can disrupt market efficiency.
With enough of free riders, public goods will
be underprovided by the market.
Is he working on your group project? Or is
he on Facebook, free-riding on your effort? B
A CK
T O
Private Goods and Public Goods
Failure to provide public goods at the
optimal level can create substantial costs.
The benefits of public goods provide a strong
argument for taxation and government
provision.
By taxing everyone and producing the public
good, government can make people better off.
Without government-provided
highways, how would you get to
Columbus?
B
A CK
T O
Private Goods and Public Goods
Just because everyone can be made better
off with taxation and government provision
does not mean that everyone will be made
better off.
Some people may want more of the public good
while some may want less. Some people may
want none.
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Private Goods and Public Goods
A Forced Rider is someone who pays a share
of the costs of a public good (through
taxation) but who does not enjoy the
benefits.
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Try it!
The rise of the Internet and file sharing has
turned media such as movies and music into
public goods. How?
a)
b)
c)
d)
It
It
It
It
has
has
has
has
made
made
made
made
those
those
those
those
goods
goods
goods
goods
nonexcludable.
nonrival.
excludable.
rival.
To next
Try it!
Private Goods and Public Goods
If the government provides the public good,
how much should it produce?
Ideally, the amount that maximizes total surplus
In practice? This could be difficult.
The total benefit of a public good is the sum of
the benefits to each individual.
How will the government know how much each
person values the good?
Voting and other democratic processes can
help to produce optimal amounts of public
goods.
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Private Goods and Public Goods
3. Nonrival Private Goods are goods that are
excludable but non-rival.
Markets can provide these goods but do so
at an inefficient level.
Entrepreneurs sometimes find clever ways to
profit from nonrival private goods, even without
exclusion.
E.g. advertising on “free” T.V. stations
Wi-fi: excludable and essentially non-rival
B
A CK
T O
Common Resources and the
Tragedy of the Commons
4. Common Resources are goods that are
non-excludable but rival.
Consumers cannot be excluded from
consuming these goods
but when anyone consumes it, there is one
less for everyone else.
There is a strong incentive to consume these
resources before others.
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Common Resources and the
Tragedy of the Commons
The Tragedy of the Commons is the
tendency for any good which is unowned
and nonexcludable to be overused and
undermaintained.
Example: Fish



Since fish are not owned, it is difficult to prevent
anyone from fishing.
When one person catches a fish, there are fewer fish
available to everyone else.
Each person has the incentive to fish before others.
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SEE THE INVISIBLE HAND
The first Thanksgiving in America: A celebration of private property?
Communal property resulted in half the settlers starving to death in 1620.
Governor Bradford instituted private property and the Tragedy of the
Commons was reversed- something to celebrate!
Common Resources and the
Tragedy of the Commons
Southern isBluefin
Tuna catch
The Difference
Ownership
Source: Commission for the Conservation of Southern
Bluefin Tuna
Chickens
Owned, not endangered.
“Chicken of the Sea”
unowned, endangered.
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Is the “King of Sushi” in trouble? Click below to
watch a 60 minutes clip on changes in the market
for the Southern Bluefin Tuna. (12:56 minutes)
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Happy Solutions to the
Tragedy of the Commons
Why(ITQs)
are these
are like
fishTradable
thriving? Pollution
New Zealand
Permitsissues
Individual Transferable
Quotas
but for catching
fish(ITQs) for fish
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SEE THE INVISIBLE HAND
Tragedy of the Commons strikes again?
Once there were trees on Easter Island.
Try it!
Toilet paper is a rival good because:
a) there is a lot of competition in the toilet
paper market.
b) it is a substitute good for a bidet.
c) if one person uses several sheets of
toilet paper it reduces the ability of
another person to use the same sheets.
d) it is made from natural resources.
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