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