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Matakuliah
Tahun
: J0114-Teori Ekonomi
: 2009
GOVERNMENT AND MARKET FAILURE
Pertemuan 23
Public Goods
• Private Goods
– Rivalry
– Excludability
• Public Goods
–
–
–
–
Bina Nusantara University
Nonrivalry
Nonexcludability
Free-Rider Problem
Optimal Quantity of a Public Good
3
Demand for Public Goods
Two Individuals
(1)
(3)
Quantity
Of Public
Good
(2)
Adams’
Willingness
To Pay (Price)
1
$4
+
$5
=
$9
2
3
+
4
=
7
3
2
+
3
=
5
4
1
+
2
=
3
5
0
+
1
=
1
Bina Nusantara University
(4)
Collective
Willingness
To Pay (Price)
Benson’s
Willingness
To Pay (Price)
Graphically…
4
Demand for Public Goods
P
$9
Collective Demand
$7 for 2 Items
$3 for 4 Items
7
Collective Demand and Supply
S
Optimal
Quantity
5
Collective
Willingness
To Pay
3
Connect the Dots
DC
1
0
Benson’s Demand
$4 for 2 Items
$2 for 4 Items
1
2
Bina Nusantara University
4
5
Q
P
$6
5
4
3
2
1
0
$6
5
4
3
2
1
0
Comparing
MB and MC
Benson
D2
1
2
P
Adams’ Demand
$3 for 2 Items
$1 for 4 Items
3
3
4
5
Q
Adams
D1
1
2
3
4
5
5
Q
G 28.1
Externalities
Negative Externalities
Positive Externalities
P
P
Negative
Externalities
St
St
Dt
Positive
Externalities
S
0
D
D
Overallocation
0
Qo
Qe
Q
Qe
Qo
• Individual Bargaining: Coase Theorem
– Limitations
• Liability Rules and Lawsuits
Bina Nusantara University
O 28.1
Underallocation
Q
O 28.2
6
Externalities
• Government Intervention
– Direct Controls
– Specific Taxes
– Subsidies and Government Provision
• Subsidies to Buyers
• Subsidies to Producers
• A Market-Based Approach
– The Tragedy of the Commons
– A Market for Externality Rights
Bina Nusantara University
7
Externalities
• Operation of the Market
– Advantages
– Real-World Examples
Price Per Pollution Right
P
D2006
$200
$100
0
Bina Nusantara University
S=Supply of
Pollution
Rights
D2016
500
750
1000
Quantity of 1-Ton Pollution Rights
Q
8
Externalities
Society’s Marginal Benefit and Marginal
Cost of Pollution Abatement (Dollars)
• Society’s Optimal Amount of Externality Reduction
– MC, MB, and Equilibrium
Bina Nusantara University
MC
Socially
Optimum Amount
Of Pollution
Abatement
MB
0
Q1
9
Global Warming
Carbon-Dioxide Emissions, Tons Per Capita,
Selected Nations 2004
GLOBAL PERSPECTIVE
0
United States
Australia
Canada
Czech Republic
Germany
Japan
United Kingdom
Italy
Spain
Bina Nusantara University
France
5
10
15
20
25
19.8
17.0
16.2
11.8
10.3
9.2
8.8
7.4
7.2
6.2
10
Information Failures
O 28.3
• Asymmetric Information
• Inadequate Information Involving Sellers
– Example: Gasoline Market
– Example: Licensing of Surgeons
• Inadequate Information Involving Buyers
– Moral Hazard Problem
– Adverse Selection Problem
– Workplace Safety
• Qualification
Bina Nusantara University
11