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

2. Part I: Free & Forced Riders
The Supply Problem
We can “imagine” the optimal level.
There still will be free riding.
pri. benefits
costs
Quantity $
pub. benefits
Q1 Q2
What is Q2?
How do you decide on payment?
Tax can’t be equal can it?
Do we know “willingness to pay?”.

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. Privatizing Road pricing in Hong Kong. Private roads- Stossel video
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, then bankrupt, and continuing woes)

6. What are property rights?
Part II: Private Property
What are property rights?
Attributes of economic goods
A “bundle of rights.”
A set of behavioral rules.
Defined
Defendable
Divestible
A human right (!)
Alchian
The case of Kuapa Pond.

7. Property types Open access common property Common property
First come, first served.
Tragedy of the Commons
Common property
Limited set of owners!
“Common-pool resources” & Ostrom
Fisheries, grazing land, elephants.
Private property
Coase Theorem, how to deal with externalities
“Without property rights, there are only two solutions to conflict over scarce resources: violence or politics.”

8. Establishment of rights
Natural rights
Locke, rights pre-date government.
Role of gov’t. is to protect these rights.
Hobbes: the social contract requires that we submit to authority.
Napolitano & rights
Ryan & rights
Utility-based
Government regulations … taxing, banning, controlling
AZ sales tax, kidney sales, eminent domain
Kelo v. New London (video)
Wetlands (Stossel video; 7 min. mark)
“Rent extraction” as ultimate threat.

9. ECO 481: Public Choice Theory
Week 5 –
Part I: Free & Forced Riders
Part II: Private Property
Dr. Dennis Foster