PUBLIC GOODS
EXTERNALITIES
ING. DAVID SLAVATA, PH.D.,
PUBLIC FINANCE A
THE MARKET FAILURES
• Public Goods
• Externalities
• Imperfect Competition
• Asymmetric Information
THE CLASSIFICATION OF GOODS
•Institutional view
•Economical view
INSTITUTIONAL VIEW
•Market goods
•Non market goods
THE MARKET GOODS
The market goods are distributed and alocated by
the market. The market price, which is the
equilibrum of supply and demand is the main factor
to whom it will be distributed.
THE NON MARKET GOODS
The distribution of goods do not depend on the
market price. Mostly it depends on the decision of
the government.
THE STATE PRICE REGULATION
•Administrative prices
•Cost based prices
•Time directed prices
•Moratorim
THE ECONOMICAL VIEW
• Excludability
- the possibility to exclude anybody from the consuming of the good.
• Rivality
- means the possibility of reducing the quantity of available good by the consumption to any other.
Rivalrous
Non rivalrous
Exludable
Private good
Club good
Non excludable
Common property
Public good
resources
THE SAMPLES
• Private goods
- pencil, bread...etc.
• Public goods
- roads, city lights, defense, police..etc.
• Common property resource
- lake for fishing
• Club goods
- Cabel TV, NATO
THE PUBLIC GOODS
•Colectively consumed
•Privately consumed
•Semiprivately consumed
THE SAMPLES
• Market private good
• Non market private good
• Non market public good
• Market public good
EXTERNALITIES
A cost or benefit that occurs when the
activity of one entity directly affects the
welfare of another in a way that is outside
the market mechanism.
THE CLASSIFICATION
•Positive externalities
•Negative externalities
•Reciprocial
THE NEGATIVE EXTERNALITIES
There is a negative effect from the production of the entity.
• Pollution
• Chamicals
THE POSITIVE EXTERNALITIES
There is a positive effect from the activity of the entity.
• Agriculture
- bio agriculture
• Fisherman societies
RECIPROCIAL
There is a mutual benefit from the entity activity.
Sample: Beekeeper and gardener.
THE INSTRUMENTS
• Taxes
• Fees
• Emmission permits
• Subsidies
• Legal protection
PIGOUVIAN TAXATION
a tax devised by Arthur Cecil Pigou (1877–1959) to
remove the negative external impact. According to Pigou,
environmental polluters must pay a tax equal to the
difference between actual and social costs when producing
a commodity or using a polluting technology.
THE COASE THEOREM
• In a competitive economy with complete information and zero
transaction costs, the allocation of resources will be efficient
and invariant with respect to legal rules of entitlement.
• The problem of negative externality can be solved without the
need for governmental intervention.
• The condition of clear property rights.
THE SAMPLE
• Factory owner and farmer
• pollution causes the harm to the farmer for 100 USD as negative externality
• the externality can be eliminate by the investing of 50 USD to the factory
• In case of the valid claim of the farmer the factory owner gladly will invest 50 USD to
avoid the paying the 100 USD to the farmer.
• In case of valid claim of the factory owner the farmer would gladly pay 50 USD to the
factory owner to invest to his factory to prevent the pollution which avoid the harm of
the farmer in sum of 100USD.
THANK YOU FOR YOUR ATTENTION