Collective Goods and Service Public Finance - 3

Collective Goods and Service We shall examine the basis for the rise of government even under idealistic market condition. Lets assume a hypothetical society of fishermen living in isolated island. After experience of having several boats run on surrounding rocks, the need for a lighthouse become clear. The lighthouse will be of a benefit to each fisherman. But the private market economy, might not get the lighthouse built. Because the enterprising individual has no way of restricting the usage of his product. He could not sell individual share of the benefit to the separate fisherman.

Collective Goods indivisibilityThe distinguishing characteristic of the collective or public good is the indivisibility of services among separate persons. non-exclusive:Which mean non-exclusive: particular individuals may not be excluded from the benefits without undue cost. non-rival consumptionAnother characteristic non-rival consumption. The amount consumed by one person do not effect the amount to be consumed by others.

Organize Collectively The sensible manner for the community of fishermen to secure the light house is to organize collectively. For this to happen either the fishermen must have the right to force an unreasonable man to move off the island, or the must be no really unreasonable men present. If neither of these condition is met the voluntary arrangement may break down. It is the likelyhood that a free rider will be present that makes political, or governmental action necessary in many cases.

The Range of Collective Goods The common defense: defense against external enemies (indivisible). Protection is equally available to all Saudi citizens. Law and order: Internal defense Environmental control: to prevent the creation of public bads. To reduce air and water pollution, to reduce noise, to conserve natural resources, to reduce congestion. Monetary Stability: reduce inflation Regularly Measure: Traffic reguilation, food and drug laws

Political boundary and indivisibility The boundaries of the political units may not, coincide with the range of individuality characterizing a genuinely collective good or service. The range of indivisibility may be considerably more limited more limited than that indicated by the boundaries of the political unit.

Public Financing and Public Operation It is useful to distinguish between financing of a particular service and the actual governmental operation.

Quasi-collective or impurely public goods and service A portion of benefits are divisible. Education Parks

Private Service Publicaly provided Postal services Highway Radio and TV

Collective Interest and Market activity