3. Public Goods
Collectively consume
1. One person’s consumption does
not prevent another person
It is impossible to exclude one to
derive benefit
Public goods
4. Public Good
non- rivalrous
A type of good that
may only be
possessed or
consumed by a
single user.
non – excludable
their benefits are
available to anyone,
regardless of
whether they have
contributed to the
cost of providing
them..
.
5. Public Goods
fresh air, systems
Knowledge, lighthouses
national defense, flood control
sewer systems, public parks
radio broadcasts,
7. Free Riders Problem
In economics, the free rider problem
refers to a situation where some
individuals in a population either
consume more than their fair share of a
common resource, or pay less than
their fair share of the cost of a common
resource.
11. Solution
Regulatory solutions to free riding take the form
of union security practices
The (pre-entry) closed shop, the hiring hall and
the preferential shop
The union shop (post-entry closed shop) and
maintenance of membership agreements
The agency shop (compulsory bargaining fees)
12. Free Rider Problem
Market solution :
Assurance contracts
Coasian solution
Government provision
Subsidies and joint products
Privileged group
Merging free riders
Introducing an exclusion mechanism (club
goods)
Social norms
13. Solution( assurance contract)
An assurance contract is a
contract in which participants
make a binding pledge to
contribute to building a public
good, contingent on a quorum of a
predetermined size being reached.
14. Solution( coasian )
The coasian solution, named for the
economist Roalnd Coase, proposes a
mechanism by which potential beneficiaries of a
public good band together and pool their
resources based on their willingness to pay to
create the public good
15. Solution (Public Provision)
If voluntary provision of public goods will not
work, then the obvious solution is making their
provision involuntary. This saves each of us
from our own tendency to be a free rider, while
also assuring us that no one else will be
allowed to free ride.
16. Solution
Subsidies and joint products
A government may subsidize production of a public good in the
private sector.
Privileged group
The study of collective action shows that public goods are still
produced when one individual benefits more from the public
good than it costs him to produce it; examples include benefits
from individual use, intrinsic motivation to
produce, and business models based on selling complement
goods. A group that contains such individuals is called
a Privileged group.
17. Solution
Merging free riders
Another method of overcoming the free rider problem is to
simply eliminate the profit incentive for free riding by buying out
all the potential free riders.
Introducing an exclusion mechanism
(club goods)
to introduce exclusion mechanisms which turn public goods
into Club Goods. One well-known example is copy
right and patent laws.
Social norms
If enough people do not think like free-riders, the private and
voluntary provision of public goods may be successful.
