Economics 783 Experimental Economics Second 经济学783实验经济学.ppt

Economics 776Experimental EconomicsFirst Semester 2007Topic 4: Public Goods Assoc. Prof. Ananish Chaudhuri Department of Economics University of Auckland Public Goods Public goods (social or collective goods) are goods that are non-rival in consumption and/or their benefits are non-excludable. Public goods have characteristics that make it difficult for the private sector to produce them profitably (market failure). The Characteristics of Public Goods A good is non-rival in consumption when A’s consumption of it does not interfere with B’s consumption of it. The benefits of the good are collective—they accrue to everyone. A good is non-excludable if, once produced, no one can be excluded from enjoying its benefits. The good cannot be withheld from those that don’t pay for it. Examples of Public Goods Fire Service Police National Defense Highways Public Parks Environment Problems of Cooperation Cooperative hunting and warfare (important during human evolution) Exploitation of common pool resources Clean environment Teamwork in organizations Collective action (demonstrations, fighting a dictatorship) Voting Problems of Cooperation Basic economic problem Cooperative behavior has a positive externality. Hence, social marginal benefit is larger than private marginal benefit Results in under-provision of the public good relative to the efficient level. A Generic Voluntary Contributions Mechanism / Public Goods Game Group of 4 players Each of them have $5 Can contribute to either a private account or a public account Money put in the private account remains unchanged Money contributed to the public account doubled and redistributed equally among group members A Generic Voluntary Contributions Mechanism / Public Goods Game Analogous to a n-person Prisoner’s Dilemma Social optimum is for each player to invest all $5 into the public account A total of $20 which gets doubled to $40 Redistributed equally gets $10 for each player 100% return on investment A Generi