1. ECO 481: Public Choice Theory Week 5 – Part I: Free & Forced Riders Part II: Private Property Dr. Dennis Foster

2. The Supply Problem We can “imagine” the optimal level. There still will be free riding. What is Q2? How do you decide on payment? Tax can’t be equal can it? Do we know “willingness to pay?”. pri. benefits costs Quantity $ pub. benefits Q1 Q2 Part I: Free & Forced Riders

3. In market, we adjust Q to make MB=MC. There are very few purely public goods. Markets try to transform in quasi-private goods. – TV, radio, fenced in rangeland. Political determination of differing preferences. Nobody gets what they want! Probably lessens WTP. “If everyone is unhappy…” The Supply Problem

4. Too much or too little? If benefits are long-run, under-provide. If costs are long-run, over-provide. If public accepts “publicness” and financing tied to production, outcome is likely close to “optimal.” Producers of public good biased towards too much. – Pentagon example – Schools and bus systems – Goldwater report. The Supply Problem

5. Road pricing in Hong Kong. – Singapore & London. Private roads- Stossel videovideo Private parks? – Meteor Crater, Mt. Vernon, Grand Canyon Caverns. Education - vouchers as start. “Merit goods?” – Flagstaff: “amenities.” Final Thought – The bankrupt city (Stockton)Stockton Privatizing

6. What are property rights? Attributes of economic goods – A “bundle of rights.” A set of behavioral rules. – Defined – Defendable – Divestible A human right (!) – Alchian The case of Kuapa Pond. Kuapa Pond Part II: Private Property

7. Property types Open access common property – First come, first served. – Tragedy of the Commons Common property – Limited set of owners! – “Common-pool resources” & OstromOstrom Fisheries, grazing land, elephants. Private property – Coase Theorem, how to deal with externalities – “Without property rights, there are only two solutions to conflict over scarce resources: violence or politics.”

8. Establishment of rights Natural rights – Locke, rights pre-date government. Role of gov’t. is to protect these rights. – Ryan & rights Utility-based – Government regulations … taxing, banning, controlling AZ sales tax, kidney sales, eminent domain Kelo v. New London (video); AZ case KelovideoAZ case Wetlands (Stossel video; 7 min. mark)video “Rent extraction” as ultimate threat.

9. ECO 481: Public Choice Theory Week 5 - Part I: Free & Forced Riders Part II: Private Property Dr. Dennis Foster