Microeconomics · free preview
Public Goods and Free Riders
Goods that are nonrival and nonexcludable are underprovided by voluntary payment because each person hopes others will pay, and efficiency demands provision where total willingness to pay covers cost.
1. Two properties, four worlds
Two properties, four worlds
2. Summing vertically
Summing vertically
3. The free rider's arithmetic
The free rider's arithmetic
4. Solutions and near-solutions
Solutions and near-solutions
5. Classifying the good
A lighthouse beam warns all ships equally, one ship's use does not dim it for others, and there is no practical way to illuminate only paying ships. What kind of good is it?
6. The efficient provision test
A park costs 60 dollars, and three residents value it at 40, 25 and 15 dollars, all consuming the same park. Should it be built, and why?
7. Summing the values
Four citizens value a new bridge at 30, 20, 15 and 10 dollars each, all using the same bridge, whose cost is 60 dollars. Compute the total value in dollars and write the number.
8. Sorting the four worlds
Which of the following is the purest public good?
9. The free rider's logic
Why do voluntary contributions underprovide a public good?
10. Surplus of the bridge
Three citizens value a bridge at 40, 30 and 20 dollars each, and the bridge costs 85 dollars to build. Compute the total surplus from building it, and write the number.
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