Public Good Provision

Social Dilemma Conflict between individual incentives to free—ride and social incentives to contribute toward the provision of a public good. In Economics: Externalities & Market Failure => There’s need for public goods provision!

Peculiarities of Public Goods Non-Rivalry: Multiple individuals can consume the same good without diminishing its value. Non-Excludability: An individual cannot be prevented from consuming the good whether or not the individual pays for it. – Individuals have the incentive to free ride, or to not pay for the benefits they receive from consuming the public goods => Private firms cannot earn sufficient revenues.

Mechanisms to Provide Public Goods Include: 1 In those cases where the private market fails to provide the efficient level of public goods, provision of public goods requires collective action: Civic Responsibility, Individual Volunteerism, Private Fund Raising and Donation: Donations to Hospital Rooms.. Private Provision of Excludable Public Goods: Movies, Music Concerts..

Mechanisms to Provide Public Goods Include: 2 Public Provision of Excludable Public Goods through the Use of Entrance Fees: National Parks.. Public Provision of Non-Excludable Public Goods through the Use of General Government Tax Revenues: National Defense

Congestion Costs / Negative Congestion Externalities Type of externality that an increasing number of users can reduce the benefits to each individual. Many cars on the highways crowd reduces the benefits to each individual..

Positive Congestion Externalities Congestion can also create benefits in some cases. Positive congestion externalities occur often in the provision of information networks. – Information Highway: When the first individual subscribed to , the value of the service was equal to zero. As subscription to the service increased, however, the value of increased due to positive congestion externality..

Organised Special Interest Groups A body that undertakes political actions on behalf of a number of citizens. Individuals who have similar policy preferences have much gain from pooling their resources to pursue common political aims.

Temptation to free ride! Those who share a group’s objectives can benefit from its political efforts even if they refuse to help pay the bills. – The owners of a textile firm will benefit from a lobby induced tariff on imported clothing whether or not they bear a portion of lobbying costs. – Free riders cannot be excluded from political benefits.

Lobbying -1- Some interest groups are being more active and well – organised: US Dairy Farmers. But, consumers are poorly organised and have little influence on the policy making process. Some interest groups are having intermediate success: – Environmentalists: Highly dedicated members & free riders..

Lobbying -2- What is Persuasion? – Changing the belief of people about a certain situation. If belief changes, the way these people take actions change. Beliefs are modelled as probabilities..

Main Activities (1) Meetings, hearings…(2) Contributions. – Survey Data: different means of persuading and educating law makers about their positions: testimonies in parliamentary hearings, meeting legislators in office, meeting for lunch, providing research and technological information. – Different stages of legislation: meet to plan strategy, assist in drafting, meet to affect voting, broker logrolling deals.. – Complex technical information about what voters want..