14-Public Goods

    1. About
      1. Two things define it
        1. Non-rivalrous, meaning it is not diminished by how
          many people use it
        2. Non-excludable, meaning if
          someone cannot pay or does not want to pay they will still benefit from
          it
      1. Examples are National defense, roads and bridges and
        education.
      2. Free-rider problem emerges,
        meaning, many people will feel someone or something else will pay for the
        good and so they don’t need to. If too many people adopt this thought,
        the good will not be produces
    2. The pursuit of self-interest
      can bring undesired results
      1. Prisoners dilemma is a great example in game theory of
        how rational self-interest can make all parties worse off
        1. Two prisoners are arrested and separated, both are
          presented with a set of circumstances
        2. If they stay silent they
          will be both better off collectively, but if both pursue their self
          interest then they will both be worse off, doing more time.

Prisoner
B

Prisoner A↓ Silent Confess
Silent A gets 2yearsB gets 2years A gets 8yearsB gets 1year
Confess A gets 1yearB gets 8years A gets 5yearsB gets 5years
      1. The free rider problem is a version of a prisoners
        dilemma
        1. If there are two players deciding to make an
          investment in a public good. Each player must decide to cooperate, which
          means to make a contribution or not
        2. If they both contribute
          they will be better off, but if only one contributes then one receives a
          greater benefit to contribution ratio. Even more, if neither contributes
          there is no good.
        3. You can think of this in
          terms of roommates splitting bills as well.
        4. As the number of people in
          the pool grows then each citizen will find it more difficult to
          contribute, thinking others will pay for it.
      1. The prisoners dilemma in different settings
        1. An arms race where no one country has an incentive to
          cut back on its own arms but all nations would benefit from abstaining
        2. Overuse of natural
          resources
        3. Oligopolistic cartel
      1. The prisoners dilemma is a great way to analyze how
        individuals act against the way they should act in a “perfect
        world”
    1. How can public goods be
      provided?
      1. Social mechanisms like personal recognition or shaming
      2. Financed through taxing
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