Chapter Outline

Public goods are unique because of the properties of non-diminishability and non-excludability that make private provision of these goods difficult.
Optimal allocation will occur where the vertically summed demand for a public good intersects the good's marginal cost curve.
1. The willingness to pay by the citizens must cover both fixed and marginal costs of the project.
2. Ideally, each citizen should be taxed equal to his willingness to pay for the amount of public good being provided.
Many private organizations function as group providers of public goods and services.
1. Voluntary contributions supply public goods if people with means are committed to the cause or if they get substantial personal benefit.
2. Sometimes by-products, like a captive audience for a TV show, can be sold as TV time is sold to advertisers.
Where unique means of exclusion can be developed, it is possible for tenant associations, clubs, and co-ops to form mutual sharing systems, if they are willing to sacrifice privacy and convenience for lower cost.
When the marginal cost of expanding the provision of a public cost is low relative to its average cost, consumers face an economic incentive to share the purchase and use of the good. The economics of clubs is the study of such situations.
When collective provision is necessary, the method of decision making often is not efficient.
1. Majority voting situations where preferences are not transitive will lead to differing outcomes depending on the way the voting agenda is structured.
2. The median voter always will be on the winning side if voters choose the option closest to their preferred outcome.
Cost-benefit analysis is more efficient than voting because it takes account of the intensity voters feel, and it would be preferred to voting, except for the complicated and costly effort often required.
Since gains from public choices are substantial, there is wasteful competition, called rent seeking, for these benefits.
Income distributed by markets goes to the productive, but that is not necessarily considered fair.
1. Rawls argues for an unbiased veil of ignorance that will lead to a better relative income standing for the poorest of the poor.
2. The desire of the rich for more public goods leads to the rich paying more taxes than the poor, while the poor become better off as public goods' free riders.
3. Cash subsidies to the poor, rather than altered relative market prices, will improve efficiency and income distribution, as long as the cash grant system does not discourage the movement out of poverty.

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