Ch35Pblic Goods(微观-范里安-(上海交通大学,赵旭 .ppt

Chapter Thirty-Five Public Goods Public Goods -- Definition A good is purely public if it is both nonexcludable and nonrival in consumption. Nonexcludable -- all consumers can consume the good. Nonrival -- each consumer can consume all of the good. Public Goods -- Examples Broadcast radio and TV programs. National defense. Public highways. Reductions in air pollution. National parks. Reservation Prices A consumer’s reservation price for a unit of a good is his maximum willingness-to-pay for it. Consumer’s wealth is Utility of not having the good is Reservation Prices A consumer’s reservation price for a unit of a good is his maximum willingness-to-pay for it. Consumer’s wealth is Utility of not having the good is Utility of paying p for the good is Reservation Prices A consumer’s reservation price for a unit of a good is his maximum willingness-to-pay for it. Consumer’s wealth is Utility of not having the good is Utility of paying p for the good is Reservation price r is defined by Reservation Prices; An Example Reservation Prices; An Example When Should a Public Good Be Provided? One unit of the good costs c. Two consumers, A and B. Individual payments for providing the public good are gA and gB. gA + gB ? c if the good is to be provided. When Should a Public Good Be Provided? Payments must be individually rational; i.e.and When Should a Public Good Be Provided? Payments must be individually rational; i.e.and Therefore, necessarily and When Should a Public Good Be Provided? And ifandthen it is Pareto-improving to supply the unit of good When Should a Public Good Be Provided? And ifandthen it is Pareto-improving to supply the unit of good, so is sufficient for it to be efficient to supply the good. Private Provision of a Public Good? Suppose and . Then A would supply the good even if B made no contribution. B then enjoys the good for free; free-riding. Private Provision of a Public Good? Suppose an