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Public goods

Definition

To be called a public good, that good must exhibit two traits:
  • There must be no way to exclude anyone from consuming it (non-excludability), 
  • One person’s consumption of the good must not diminish another person’s ability to consume the good (non-rivalry).
E.g A lighthouse, or national defence.

Public goods



Please check out the social goods page to see goods that could be provided privately but are treated as public goods.
examples national defence and atmosphere

The argument that some infrastructure goods must be provided by the state

PUBLIC GOODS argument - private sector would not provide
Non excludable and non rivalrous but most is actually excluable like toll boths, but light houses are not
non rivalrous means 
Overall a weak argument

MONOPOLY 

If the state did not provide the goods the private sector would have a monopoly

Firms would overcharge, a single seller can raise prices at will. However if you charge too much there will be competition, from either substitutes or competitors who can now compete. Regulation creates barriers to and creates monopoly
Is state monopoly any better than a private one?
EQUALITY
Privatising would exclude certain groups, the danger is - customers might not buy enough to make transaction viable for the seller. This argument doesn't hold
  •  potentially a way around this is a subsidy for these customers, as the government is already subsiding them directly).
  • Markets good at catering to segmented and niche needs.
  • Equality isn't everything, there can be other aims - too much equality impacts the economy
Government already protects big business and restricts choices for poorer people so are not really interested in equality.

ENVIRONMENT

  • The private sector would create pollution
    However states are one of the biggest casues of pollution (think communist russia)
  • Social costs exceed private costs producing negative externalities
    But costs often the result of state intervention
    And h    ow can you calculate social costs
  • State intervention is not perfect and never will be.
Cures can be worse than the disease - as policy's can mis-price, and bow to certain industries, pushing the pollution overseas.

SHORT TERMINISM 

  • The private sector doesn't think 40 years ahead. "Only the state can make long term strategic plans"
However risks don't disappear with government projects, just they are loaded onto taxpayers and consumers.

COMPULSORY PURCHASE 

State authority needed to deal with holdouts - "why govt are needed"
Complexity of schemes means state more efficient
Transaction costs inflated by regulation - markets work to reduce transaction costs
Property rights threatened

PUBLIC vs PRIVATE provision

Economic calculation argument - top down
Central planning v's entrepreneurial discovery
Elite preferences verses individual preferences -Voting with your money, more effective than once every election cycle
Special interests v's consumers

GOVT FAILURE ON ROADS

Congestion
Poor maintenence and high accident rates
demand and supply mismatched
projects for political reasons
policy benefits special interests
Lack of innovation
costs pushed up
Underinvestment
Policy becomes designed to stop people travelling!!! (bus lanes in, footpaths widened)

Benefits of private ownership

Investment reflects demand
Price mechanism can eliminate congestion
innovation and efficiency gains
Strong incentive to reduce accidents
Services reflect consumer preferences
market for poorer customers
Localise solutions

Real reasons for state control

Theft of land or people
Facilitating taxation
Rigging markets to meet political goals
create artificial scarcity on enrich elite interests
Fostering a culture of dependency - people can't create their own infrastructure.
Social engineering/social cohesion

Privatisation 
Makes taxation and regulation more difficult
Disperses control away from corrupt elites
Restores freedom of association
Strengthens private property and individual freedom.

Private sector are not just businesses, they can be non profit organisations.
Government sometimes do things the free market would do anyway but just claim the credit.

Don't need third party insurance, you can insure yourself that someone without third party will crash into you.
PPP removes debt from the govts books, and gets the public to pay for it later.

Reference

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