Public Goods and Common Resources

Economics for Business II

Day 10

Spring 2013

April 23 2013 2

Public (Government) Action?

Question: When should the government act on behalf of society, even if it means interfering with private enterprise?

April 23 2013 3

Non-excludability

• the goods cannot be confined to those who have paid for it

April 23 2013 4

Non-rivalry in consumption

the consumption of one individual does not reduce the availability of goods to others

April 23 2013 5

Is the SUN a rival good?

April 23 2013 6

Spot the free rider

April 23 2013 7

Public Goods - Benefits

April 23 2013 8

World's Largest Solar Street Lighting Project by PTLSOLAR™.

April 23 2013 9

Lighting

April 23 2013 10

Flood barriers on the Thames River.

April 23 2013 11

Flood barriers on the Thames River.

April 23 2013 12

The flood control system built on the Thames to control higher than normal

April 23 2013 13

April 23 2013 14

Eastern Scheldt Storm Surge Barrier in the Netherlands

April 23 2013 15

Property Rights

• The importance of Property Rights – the market fails to allocate resources

efficiently because of the not well-established property rights

– when markets fail due to the absence of property rights, the government can step in and solve the problem by using regulation or taxing.

April 23 2013 16

Summary

• Public goods refer to the goods that are not excludable or rival in consumption

• Common resources are not excludable but rival in consumption

• A common resources create new problem: how much is it going to be used? (Tragedy of the Commons)

• When markets fail due to the absence of property rights, the government can step in and solve the problem by using regulation or taxing