Pubic Goods and the Tragedy of the Commons
Slides [link]Required Reading
- KO pages 85-99
- Read this article on a congestion pricing program that is about to be implemented in NYC.
Response questions
- Why doesn’t the free market result in an efficient number of cars on the road in Manhattan?
- What do you think the best solution to this problem of Manhattan traffic is? (4 sentences or less)
Additional material:
- Kwiek provides a detailed discussion of the economics of congestion pricing (on canvas)
- Hardin (1968) - one of the most widely cited papers.
- Important summary on Hardin’s disgraceful views available here. And a nice Twitter discussion of the pros and cons of teaching the TOC in light of this here.
Key Points
- Taxonomy of goods -- private, open access, club goods, pure public goods.
- Understand how private incentives to supply / consume public goods differs from the social optimum.
- When goods are rival but non-excludable, this leads to a Tragedy of the Commons. Know how to find the open access equilibrium (private marginal net benefits are exhausted), and how to compute deadweight loss relative to the social optimum.
- The efficient outcome can be obtained by assigning property rights or imposing fees on entry. Know how to find these outcomes.