1. ECO 481: Public Choice Theory
Week 5 – Part I: Free & Forced Riders,
Dr. Dennis Foster

2. The Supply Problem We can “imagine” the optimal level.
There still will be free riding. $
So, what is Q2?
So, how do you decide on payment?
Tax can’t be equal can it?
Do we know “willingness to pay?”.
costs
pub. benefits
pri. benefits
Quantity
Q1 Q2

3. The Supply Problem In market, we adjust Q to make MB=MC.
There are very few purely public goods.
Markets try to transform in quasi-private goods.
TV, radio, fenced in rangeland.
Political determination of differing preferences.
Nobody gets what they want!
Probably lessens WTP.
“If everyone is unhappy…”

4. The Supply Problem If benefits are long-run, under provide.
Too much or too little?
If benefits are long-run, under provide.
If costs are long-run, over provide.
If public accepts “publicness” and financing tied to production, outcome is likely close to “optimal.”
Producers of public good biased towards too much.
Pentagon example
Schools and bus systems
Goldwater report.

5. Final Thought – The bankrupt city (Stockton)
Privatizing
Road pricing in Hong Kong.
Singapore & London.
Private roads- Stossel video
Private parks?
Meteor Crater, Mt. Vernon, Grand Canyon Caverns.
Education - vouchers as start.
“Merit goods?”
Flagstaff: “amenities.”
Final Thought – The bankrupt city (Stockton)

6. ECO 481: Public Choice Theory
Week 5 – Part I: Free & Forced Riders,
Dr. Dennis Foster