Political: What are Public Goods?

(intro music) Hi! My name's Jonny Anomaly, and I teach at Duke University and UNC Chapel Hill. Today, I'm going to talk about public goods. Consider the following case. In representative governments around the world, citizens are periodically called on to vote for parties or candidates. In large elections, many people choose not to vote. But among those who do vote, each faces the choice of how much time to spend gathering and processing information about the candidates. Since each person's vote is unlikely to make a difference to the outcome of an election, and everyone knows this, there's little benefit to voters of trying to overcome bias or increase general knowledge about the relevant issues. The expected benefits of gathering and processing information are diffuse, but the cost is concentrated on the individual who has forego other way of spending his time. In other words, informed voting is a public good in democratic societies. Goods are public when they exhibit two properties: nonrivalry and nonexcludability. Nonrivalry exists when one person's consumption of a good doesn't diminish other people's opportunities for consumption, and nonexcludability exists when nobody can be excluded from consuming a good once it is produced. Ordinary goods that we purchase in a market are private, in the sense that once we own them, we can do what please with them, within the limits of the law. For example, when i buy a surfboard, I could choose to ride it, keep it stored in my closet, or sell it to the highest bidder. But since public goods are available for everyone to consume, it is difficult to get people to voluntarily provide them or conserve them once they've been provided. When I cast an informed vote for a candidate, I make that candidate just a tiny bit more likely to win, but the legislative consequences of the candidate's victory are shared by all citizens and potentially people in other countries and future generations. Because, for many people, it is psychologically costly to invest energy engaging in serious research rather than idle gossip about the candidates and issues at stake in an election, the public good of informed, unbiased voters is undersupplied. They are two separate impediments to the voluntary provision of public goods: the free rider problem and the assurance problem. Free riders are people who seek the benefits of a good, but who try to avoid paying for it. Other people face the assurance problem, which occurs when people are willing to pay for a public good but are unsure that enough others will contribute to make their effort worthwhile. one way to solve the assurance problem is by introducing altruistic punishment, which occurs when people are permitted to punish free riders. The prospect of altruistic punishment can help increase contributions to public goods especially well for small groups in which people can bear retribution for being identified as a free rider. Assurance contracts are another way of producing local public goods. Consider Kickstarter, an internet company that allows people to contribute to an outcome that everybody in a group wants, but which doesn't collect contributions until enough people donate to reach the threshold needed to fund the good. For example, we might use Kickstarter to fund a tennis court at a park that many people in a neighborhood visit. Public goods that are global and intergenerational, though, are much more difficult to provide or preserve. Antibiotics are an example of a powerful drug whose efficacy declines as their use increases, especially when they're used at subtherapeutic doses or misused to treat infections that they lack the power to cure. Preserving the power of antibiotics to cure infections is a public good because effective antibiotics are a nonrival, nonexcludable resource whose benefits spill across borders and across generations. Assurance contracts are useless for cases like this, because the transaction costs associated with bargaining between billions of people are too high. So we need more subtle ways of preserving public goods like antibiotics. One way to approach the problem is to convert public goods into private goods by increasing the extent to which each consumer internalizes the benefits and costs of using antibiotics. For example, someone suggested that user fees should be applied to the consumption of antibiotics, with the revenue being used to fund basic science research that will stimulate the development of new vaccines, new kinds of antibiotics, and technology for diagnosing infections. It is worth distinguishing a related set of principles. The problems of producing public goods, solving collective action problems, and avoiding commons tragedies are often similar in structure, and many introductory textbooks diagram all three problems as prisoner's dilemmas. But this isn't quite right. In a true prisoner's dilemma, the non-cooperative action is always taken, since a prisoner's dilemma is defined as a non-cooperative game with a unique Pareto dominated Nash equilibrium. In other words, in a true prisoner's dilemma, cooperation is never the rational move. But in public goods games, rational people often contribute. I want to end with a question: if wifi is a public good, why is it being privately provided? Subtitles by the Amara.org community