ECO 481: Public Choice Theory
Week 5 –
Part I: Free & Forced Riders
Part II: Private Property
Dr. Dennis Foster
Part I: Free & Forced Riders
The Supply Problem
• We can “imagine” the optimal level.
• There still will be free riding.
$
• What is Q2?
costs
• How do you decide on
payment?
• Tax can’t be equal
can it?
pub. benefits
• Do we know “willingness
to pay?”.
pri. benefits
Q1 Q2
Quantity
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…”
The Supply Problem
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.
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, then bankrupt, and continuing woes)
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.
Property types
• Open access 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.”
Establishment of rights
• Natural rights
– Locke, rights pre-date government.
• Role of gov’t. is to protect these rights.
– Ryan & rights
• Utility-based
– Government regulations … taxing, banning, controlling
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•
•
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AZ sales tax, kidney sales, eminent domain
Kelo v. New London (video)
Wetlands (Stossel video; 7 min. mark)
“Rent extraction” as ultimate threat.
ECO 481: Public Choice Theory
Week 5 Part I: Free & Forced Riders
Part II: Private Property
Dr. Dennis Foster