Economics Public Goods and Common Resources, Chapter 11 of Mankiw's Economics summary to go along with the presentation at (http://www.slideshare.net/antoniostark94/public-goods-and-common-resources)

1.  The Different Kinds of Goods-criteria
Goods can be divided in respect to various criteria. Of
them, the most important criteria in this chapter are
rivalry in consumption and excludability
o Rivalry in consumption
is the property of a good whereby one person’s use
diminishes other people’s use
Thus, such goods have limited amounts at a time
o Excludability
is the property of a good whereby a person can be
prevented from using it
In normal circumstances, this means that one must
pay for the use of such good
 The Different Kinds of Goods
There are four kinds of good according to the
abovementioned criteria
o Private Goods are most common, and are the
primary subject to much economic analysis. Even in
Chapters 4 to 9, we implicitly assumed that the
goods in subject were private goods
o Club goods do not have rivalry in consumption.
Thus, its quantity is not limited, but one must pay
for the use of it. Many software or digital products
are considered as club goods.
o Common Resources and Public Goods are not
excludable. One does not need to pay for these
kinds of products. These are the primary concerns
of this chapter. Because people cannot be charged
for the use of these goods, they are subject to
externalities and thus market failures. This is when
government intervention comes in handy
 Public Goods => The Free Rider Problem
o Free rider: a person who receives the benefit
of a good but does not have to pay for it
o The benefit of the society may exceed the
cost,
but as no one ‘has’ to pay for it, the money
isn’t collected
o Socially desirable things aren’t produced
because they are not profitable
o Government intervention: tax the public and
use the revenue to provide the good
o => make everyone better off
 Public goods - Examples
o National Defense
: one of the most fundamental needs to have
a government
o Basic Research
: different from patent-able technology, that
it goes into a pool of basic knowledge
 Public goods – Cost-benefit analysis
o Must be conducted by the government to
spend the taxes to appropriate places
o Difficulties arise because quantifying the
results is hard
o Without the price signals to observe the
benefits & cost
 Common Resources – The Tragedy of the
Commons
o Collective ownership depletes the limited
resource
o Because social and private incentives differ
o Private incentives to decrease consumption
of common goods are small because the
minority is only a small part of the whole
o => negative externality
 Common Resources – solutions
o Regulate allotment
o Internalize the externality e.g. tax
o Auction off resources
o Turn into private goods e.g. enclosure
movement
 Common Resources – examples
o Clean environment => pollution
o Congested roads @ rush hour
o Wildlife
 Market failures: unstable property rights
o No one is in responsibility for the
management of it
o Creates externalities
 Market failures: solutions by government
intervention
o Define property rights e.g. pollution permits
o Regulate private behavior e.g. hunting
permits
o Utilize tax revenue
CHAPTER XI PUBLIC GOODS AND
COMMON RESOURCES
131016
Antonio Fowl Stark
김강산