GPP 501 Microeconomic Analysis for Public Policy Fall 2017 Given - - PowerPoint PPT Presentation

GPP501: Lecture Oct 31 1 of 15

GPP 501 Microeconomic Analysis for Public Policy Fall 2017

Given by Kevin Milligan Vancouver School of Economics University of British Columbia Lecture October 31st Public Goods: Concepts and Definitions

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Agenda

1. Concepts and definitions 2. The case of lighthouses 3. Examples

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Public Goods: The Concept

What’s the difference?

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Public Goods: Rivalry

Does amount that I consume affect what others can consume? Can you think of any examples? What limits non-rivalry?

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Public Goods: Definition of Rivalry

Paul Samuelson: “…one [person]’s consumption does not reduce some other [person]’s consumption.” Q: How does this affect society’s decision of how much to produce? Q: How does this contrast with a good that is non- rival?

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Public Goods: Excludability

Can I stop people who haven’t paid from enjoying the good? Can you think of any examples? What limits excludability?

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Public Goods: Definition of Excludability

Gareth Myles, University of Adelaide “If the public good is supplied, no household can be excluded from consuming it, except possibly at infinite cost.” Q: How does this affect production of goods?

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Public Goods: Excludability and Non-rivalry

Non-Rival Rival Non-Excludable Excludable

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Agenda

1. Concepts and definitions 2. The case of lighthouses 3. Examples

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The Lighthouse: A public good?

A very typical example used in textbooks for a long time…. John Stuart Mill: “It is a proper office of government to build and maintain lighthouses…” Arthur Pigou: for a lighthouse, “marginal net product falls short of marginal social net product” Paul Samuelson on lighthouses: “Philosophers and statesmen have always recognized the necessary role

• f government in such cases…”

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The Lighthouse: A public good?

Q: How does a lighthouse fit in this excludable / rival framework? Rival? Excludable?

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The Lighthouse: Coase’s criticism…

https://www.jstor.org/stable/724895 In England, there was a long history of ‘private’ lighthouses, operated on patent from the Crown independently, or through Trinity House, a corporation chartered in 1514. But…

• You needed Crown permission to build.
• Mandatory tolls (“light dues”) collected by

customs officials. Coase argued: see, just need government to enforce property rights by ensuring price can be charged. Counterpoint: this wasn’t a ‘free market’ solution; it’s a regulated and enforced monopoly.

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Agenda

1. Concepts and definitions 2. The case of lighthouses 3. Examples

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Examples to consider:

i. Education

• ii. Public health
• iii. Policing / crime prevention
• iv. Scientific research/discoveries
• v. Printed word—books, writing, etc.
• vi. Environmental protection
• vii. Transportation infrastructure

viii. Charitable goods / poverty alleviation

• ix. Incarceration
• x. Water / sewage provision

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Happy Halloween!