Intermediate Microeconomics · free preview
Public Goods and Free Riding
Public goods are non-rival and non-excludable, efficient provision summing willingness to pay vertically, the worked park with benefits 40 minus q and 25 minus q against cost 60 provided at q 2.5, voluntary provision under-supplying as each waits for the other, and the VCG mechanism and Vickrey auction buying truthfulness back.
1. The vertical sum
The vertical sum
2. Free riding
Free riding
3. Buying truthfulness
Buying truthfulness
4. The provision decision
The provision decision
5. The Samuelson condition
What does the Samuelson condition for public goods require?
6. The worked provision level
Compute the efficient trail length from 65 minus 2q equals 60.
7. Free riding
Why does voluntary provision under-supply the public good?
8. Vickrey's design
Why is truthful bidding dominant in a second-price auction?
9. The summed first-unit benefit
Compute the total marginal benefit of the first unit, 40 plus 25, and write the number.
10. The stopping margin
At q of 2.5, compute resident 1's marginal benefit, 40 minus 2.5, and write the number.
11. The second resident's valuation
At the efficient trail length q of 2.5, what is resident 2's marginal benefit?
12. The first unit's case
At q of 1, total marginal benefit is 40 plus 25 minus 2. What does the condition say?
13. The free rider's arithmetic
If each resident naively contributes only what the trail is worth to them privately, what happens?
14. The auction's payment
In the second-price logic, you value the trail at 40 and the other bid comes in at 25. What do you pay and gain?
15. Resident two at the optimum
At q of 2.5, compute resident 2's marginal benefit as 25 minus 2.5, and write the number.
16. The first unit's total benefit
At q of 1, compute the total marginal benefit as 65 minus 2, and write the number.
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