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BritHennerz

408 posts

Farmer

Posted October 27, '11 9:57am UTC

Shouldn't we all work together to get through this recession?

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nichodemus

14,991 posts

Grand Duke

Posted October 28, '11 1:29pm UTC

I believe these could be provided by the private sector, but the private sector isn't allowed (and probably for a good reason).

The only reason the private sector would be hesitant to provide lamp posts is because the government is in charge of building roads. If roads were privately owned, I'm absolutely positive lamp posts would be provided without need of government intervention.

Actually...no. I could try to explain it, but I've dumped all my economics out of my head after my exams. Lucky Wiki has a nice explanation:

Public goods provide a very important example of market failure, in which market-like behavior of individual gain-seeking does not produce efficient results. The production of public goods results in positive externalities which are not remunerated. If private organizations don't reap all the benefits of a public good which they have produced, their incentives to produce it voluntarily might be insufficient. Consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the free rider problem, or occasionally, the "easy rider problem" (because consumer's contributions will be small but non-zero). If too many consumers decide to 'free-ride', private costs exceed private benefits and the incentive to provide the good or service through the market disappears. The market thus fails to provide a good or service for which there is a need.

For example, consider national defense, a standard example of a pure public good. Suppose homo economicus thinks about exerting some extra effort to defend the nation. The benefits to the individual of this effort would be very low, since the benefits would be distributed among all of the millions of other people in the country. There is also a very high possibility that he or she could get injured or killed during the course of his or her military service.
On the other hand, the free rider knows that he or she cannot be excluded from the benefits of national defense, regardless of whether he or she contributes to it. There is also no way that these benefits can be split up and distributed as individual parcels to people. The free rider would not voluntarily exert any extra effort, unless there is some inherent pleasure or material reward for doing so (for example, money paid by the government, as with an all-volunteer army or mercenaries).

As for lampposts, here's my explanation:

Non-excludability: I can't attempt to block out all the lights from the lamps and exclude others.

Non-rivalrous: Just because I used the lamp to read my newspapers in the park at night doesn't mean I ''use up'' such a quantity of light so that no one else can use it, reducing supply.

Both properties effectively destroy the principles a free market is run on, if both characteristics are applied, free rider problem sets in. Furthermore, it is virtually infeasible to charge a person how much light he ''uses''. Hence such public goods need to be provided by the State.

I hope that makes things clear Nemo?

If justice,defense and other such services were under private sector then there will b chaos

Not just that; it's economically inefficient.

[quote]I believe these could be provided by the private sector, but the private sector isn't allowed (and probably for a good reason). [/quote]\r\n\r\n\r\n[quote]The only reason the private sector would be hesitant to provide lamp posts is because the government is in charge of building roads. If roads were privately owned, I'm absolutely positive lamp posts would be provided without need of government intervention.[/quote]\r\n\r\nActually...no. I could try to explain it, but I've dumped all my economics out of my head after my exams. Lucky Wiki has a nice explanation:\r\n\r\n\r\n[i]Public goods provide a very important example of market failure, in which market-like behavior of individual gain-seeking does not produce efficient results. The production of public goods results in positive externalities which are not remunerated. If private organizations don't reap all the benefits of a public good which they have produced, their incentives to produce it voluntarily might be insufficient. Consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the free rider problem, or occasionally, the "easy rider problem" (because consumer's contributions will be small but non-zero). If too many consumers decide to 'free-ride', private costs exceed private benefits and the incentive to provide the good or service through the market disappears. The market thus fails to provide a good or service for which there is a need.\r\n\r\nFor example, consider national defense, a standard example of a pure public good. Suppose homo economicus thinks about exerting some extra effort to defend the nation. The benefits to the individual of this effort would be very low, since the benefits would be distributed among all of the millions of other people in the country. There is also a very high possibility that he or she could get injured or killed during the course of his or her military service.\r\nOn the other hand, the free rider knows that he or she cannot be excluded from the benefits of national defense, regardless of whether he or she contributes to it. There is also no way that these benefits can be split up and distributed as individual parcels to people. The free rider would not voluntarily exert any extra effort, unless there is some inherent pleasure or material reward for doing so (for example, money paid by the government, as with an all-volunteer army or mercenaries).[/i]\r\n\r\n\r\nAs for lampposts, here's my explanation: \r\n\r\nNon-excludability: I can't attempt to block out all the lights from the lamps and exclude others.\r\n\r\nNon-rivalrous: Just because I used the lamp to read my newspapers in the park at night doesn't mean I ''use up'' such a quantity of light so that no one else can use it, reducing supply.\r\n\r\nBoth properties effectively destroy the principles a free market is run on, if both characteristics are applied, free rider problem sets in. Furthermore, it is virtually infeasible to charge a person how much light he ''uses''. Hence such public goods need to be provided by the State.\r\n\r\nI hope that makes things clear Nemo?\r\n\r\n \r\n[quote]If justice,defense and other such services were under private sector then there will b chaos[/quote]\r\n\r\nNot just that; it's economically inefficient.

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NoNameC68

5,043 posts

Shepherd

Posted October 28, '11 2:20pm UTC

As for lampposts, here's my explanation:

Non-excludability: I can't attempt to block out all the lights from the lamps and exclude others.

Non-rivalrous: Just because I used the lamp to read my newspapers in the park at night doesn't mean I ''use up'' such a quantity of light so that no one else can use it, reducing supply.

Both properties effectively destroy the principles a free market is run on, if both characteristics are applied, free rider problem sets in. Furthermore, it is virtually infeasible to charge a person how much light he ''uses''. Hence such public goods need to be provided by the State.

I hope that makes things clear Nemo?

Actually, that doesn't make any sense to me.

Public goods provide a very important example of market failure, in which market-like behavior of individual gain-seeking does not produce efficient results. The production of public goods results in positive externalities which are not remunerated. If private organizations don't reap all the benefits of a public good which they have produced, their incentives to produce it voluntarily might be insufficient. Consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the free rider problem, or occasionally, the "easy rider problem" (because consumer's contributions will be small but non-zero). If too many consumers decide to 'free-ride', private costs exceed private benefits and the incentive to provide the good or service through the market disappears. The market thus fails to provide a good or service for which there is a need.

I don't think humanity is stupid enough to derp themselves out of needs like that.

If for some reason it became too costly to provide a service, then everyone would continue have a demand for said service. The demand doesn't go away. A market will take advantage of this demand one way or another. I can understand why military would be controlled by the government, though for different reasons than mentioned, but let's look at lamp posts, there's no need for the government to provide them.

[quote]As for lampposts, here's my explanation:\r\n\r\nNon-excludability: I can't attempt to block out all the lights from the lamps and exclude others.\r\n\r\nNon-rivalrous: Just because I used the lamp to read my newspapers in the park at night doesn't mean I ''use up'' such a quantity of light so that no one else can use it, reducing supply.\r\n\r\nBoth properties effectively destroy the principles a free market is run on, if both characteristics are applied, free rider problem sets in. Furthermore, it is virtually infeasible to charge a person how much light he ''uses''. Hence such public goods need to be provided by the State.\r\n\r\nI hope that makes things clear Nemo?[/quote]\r\n\r\nActually, that doesn't make any sense to me. \r\n\r\n[quote]Public goods provide a very important example of market failure, in which market-like behavior of individual gain-seeking does not produce efficient results. The production of public goods results in positive externalities which are not remunerated. If private organizations don't reap all the benefits of a public good which they have produced, their incentives to produce it voluntarily might be insufficient. Consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the free rider problem, or occasionally, the "easy rider problem" (because consumer's contributions will be small but non-zero). If too many consumers decide to 'free-ride', private costs exceed private benefits and the incentive to provide the good or service through the market disappears. The market thus fails to provide a good or service for which there is a need.[/quote]\r\n\r\nI don't think humanity is stupid enough to derp themselves out of needs like that.\r\n\r\nIf for some reason it became too costly to provide a service, then everyone would continue have a demand for said service. The demand doesn't go away. A market will take advantage of this demand one way or another. I can understand why military would be controlled by the government, though for different reasons than mentioned, but let's look at lamp posts, there's no need for the government to provide them.

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nichodemus

14,991 posts

Grand Duke

Posted October 28, '11 3:05pm UTC

Public goods are a source of free market failure, they have the characteristics of being non-excludable and non-rivalrous.

Non Rivalry in COnsumption: Consumption of the good by additional individuals will not prevent others from enjoying the same good, or reduce the quantity consumed by existing consumers.

Non-Excludability in Consumption: Means that it is impossible or prohibitively expensive to excluse non-payers from using it.

The provision of public goods suffers from the free rider problem. A free-rider is anyone who receives benefits from a good or service without having to pay for them. Since anyone can have all the benefits provided by a pure public good without paying for it, producers will not supply this good. Hence, despite the fact that a pure public good yields valuable benefits to society, a free rider problem means that the market will not provide such a good.

From another angle, yes, humanity is not stupid enough to derp themselves of needs like that. But the private sector will not delve into such ventures simply because it is impossible to work out a system to charge consumers of the goods and services.

Yes it is undeniable the deamnd will not go away. But demand is not sufficient to convince say a company to build lamp posts since as mentioned, they won't have a viable way to charge for the lamp posts usage. It is simply not profitable, hence the State has to do it.

Let us use the lamp post as an example. When I say it is non-rivalrous, I mean that by me using the lamp post, I do not somehow reduce the amount of light a lamp post gives out. By non-excludability I mean that there is no way I can excluse ANYONE from using it. For non-public goods, price itself excludes those who can't pay for it, hence it's a free market as consumers ''bid'' to acquire those goods.

Public goods are a source of free market failure, they have the characteristics of being non-excludable and non-rivalrous.\r\n\r\nNon Rivalry in COnsumption: Consumption of the good by additional individuals will not prevent others from enjoying the same good, or reduce the quantity consumed by existing consumers. \r\n\r\nNon-Excludability in Consumption: Means that it is impossible or prohibitively expensive to excluse non-payers from using it.\r\n\r\nThe provision of public goods suffers from the free rider problem. A free-rider is anyone who receives benefits from a good or service without having to pay for them. Since anyone can have all the benefits provided by a pure public good without paying for it, producers will not supply this good. Hence, despite the fact that a pure public good yields valuable benefits to society, a free rider problem means that the market will not provide such a good.\r\n\r\nFrom another angle, yes, humanity is not stupid enough to derp themselves of needs like that. But the private sector will not delve into such ventures simply because it is impossible to work out a system to charge consumers of the goods and services. \r\n\r\nYes it is undeniable the deamnd will not go away. But demand is not sufficient to convince say a company to build lamp posts since as mentioned, they won't have a viable way to charge for the lamp posts usage. It is simply not profitable, hence the State has to do it.\r\n\r\nLet us use the lamp post as an example. When I say it is non-rivalrous, I mean that by me using the lamp post, I do not somehow reduce the amount of light a lamp post gives out. By non-excludability I mean that there is no way I can excluse ANYONE from using it. For non-public goods, price itself excludes those who can't pay for it, hence it's a free market as consumers ''bid'' to acquire those goods.

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NoNameC68

5,043 posts

Shepherd

Posted October 28, '11 4:04pm UTC

Yes it is undeniable the deamnd will not go away. But demand is not sufficient to convince say a company to build lamp posts since as mentioned, they won't have a viable way to charge for the lamp posts usage. It is simply not profitable, hence the State has to do it.

Remember, profit is a measure of efficiency, even if there are free riders.

But the private sector will not delve into such ventures simply because it is impossible to work out a system to charge consumers of the goods and services.

This is not necessarily true. The government say's it's impossible, so they take our money at gunpoint and pay for these goods and services. Without the gun to our heads, someone will find a way to provide these services efficiently despite free riders. Of course, they may not always be successful, because some goods and services are not as valuable as alternatives.

For example, let's look at the lamp post. Let's say one person was willing to pay for lamp post. However, no one is willing to help him pay for the lamp post and he doesn't want to pay so much for a lamp post by himself. Now, the man can try to find ways to get others to help pay, which is great. However, if he fails, the electricity from the lamp will be cut off.

Now, either people will start for the lamp to go back on, or they won't. If they don't, then alternative light sources pop up. Instead of people wandering by street light, people are now wondering around using flash lights.

The free rider solution of government purchase with money they have stolen does not take into consideration alternatives, nor does it realize that some goods and services are overall unpopular and a waste of money.

Let's look at trains as public transportation. The government can pay these trains, because they know people wouldn't want to pay for them anyway. The government takes more money from the people they are serving to pay for these trains and now we have government funded trains to take people where they need to go. However, there's a problem. The trains were created to hold 50 passengers a car, but they are averaging only 8 passengers a car. The majority of people paying for the trains aren't even using them! This is what we call government waste.

So how do we differentiate government waste from public "needs"? When a government pays for a "need", then how do we know if there's a more efficient way to provide that need, or if the need really need be provided in the first place?

[quote]Yes it is undeniable the deamnd will not go away. But demand is not sufficient to convince say a company to build lamp posts since as mentioned, they won't have a viable way to charge for the lamp posts usage. It is simply not profitable, hence the State has to do it.[/quote]\r\n\r\nRemember, profit is a measure of efficiency, even if there are free riders. \r\n\r\n[quote]But the private sector will not delve into such ventures simply because it is impossible to work out a system to charge consumers of the goods and services. [/quote]\r\n\r\nThis is not necessarily true. The government say's it's impossible, so they take our money at gunpoint and pay for these goods and services. Without the gun to our heads, someone will find a way to provide these services efficiently despite free riders. Of course, they may not always be successful, because some goods and services are not as valuable as alternatives.\r\n\r\nFor example, let's look at the lamp post. Let's say one person was willing to pay for lamp post. However, no one is willing to help him pay for the lamp post and he doesn't want to pay so much for a lamp post by himself. Now, the man can try to find ways to get others to help pay, which is great. However, if he fails, the electricity from the lamp will be cut off.\r\n\r\nNow, either people will start for the lamp to go back on, or they won't. If they don't, then alternative light sources pop up. Instead of people wandering by street light, people are now wondering around using flash lights. \r\n\r\nThe free rider solution of government purchase with money they have stolen does not take into consideration alternatives, nor does it realize that some goods and services are overall unpopular and a waste of money.\r\n\r\nLet's look at trains as public transportation. The government can pay these trains, because they know people wouldn't want to pay for them anyway. The government takes more money from the people they are serving to pay for these trains and now we have government funded trains to take people where they need to go. However, there's a problem. The trains were created to hold 50 passengers a car, but they are averaging only 8 passengers a car. The majority of people paying for the trains aren't even using them! This is what we call government waste. \r\n\r\nSo how do we differentiate government waste from public "needs"? When a government pays for a "need", then how do we know if there's a more efficient way to provide that need, or if the need really need be provided in the first place?

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nichodemus

14,991 posts

Grand Duke

Posted October 28, '11 4:17pm UTC

Remember, profit is a measure of efficiency, even if there are free riders.

Pardon, but I don't get the point of your point. Alright, let us change it; revenue. There's no possible way to generate revenue in a efficient manner for lamp posts. What's going to happen? Line up men at lamp posts and forcing passer bys to pay?

Without the gun to our heads, someone will find a way to provide these services efficiently despite free riders. Of course, they may not always be successful, because some goods and services are not as valuable as alternatives.

I'll like to see the private sector divide the bill for say defense. A big MNC will surely require and make use of such services more than your average Joe, but it is impossible to place a price down and to enforce payment.

For example, let's look at the lamp post. Let's say one person was willing to pay for lamp post. However, no one is willing to help him pay for the lamp post and he doesn't want to pay so much for a lamp post by himself. Now, the man can try to find ways to get others to help pay, which is great. However, if he fails, the electricity from the lamp will be cut off.

Was this your solution? Because cutting off the electricity just because one man doesn't or can't pay is not fair.

The free rider solution of government purchase with money they have stolen does not take into consideration alternatives, nor does it realize that some goods and services are overall unpopular and a waste of money.

Actually...taxation is not stealing.

Let's look at trains as public transportation. The government can pay these trains, because they know people wouldn't want to pay for them anyway. The government takes more money from the people they are serving to pay for these trains and now we have government funded trains to take people where they need to go. However, there's a problem. The trains were created to hold 50 passengers a car, but they are averaging only 8 passengers a car. The majority of people paying for the trains aren't even using them! This is what we call government waste.

Trains are not public goods. As you said, if a train can only take 50 passengers, it is already excludable and rivalrous, it is possible to prevent a 51st person from coming on, and the buying of one ticket reduces the chance of another person using the train. Voila, free market at work, the principle being whether you can afford the ticket, and the limited supply.

Hence, not a valid example.

So how do we differentiate government waste from public "needs"? When a government pays for a "need", then how do we know if there's a more efficient way to provide that need, or if the need really need be provided in the first place?

The number of public goods is really quite limited, the main ones are mentioned already defense and a legal system. Public need or government waste? I think it's rather obvious.

[quote]Remember, profit is a measure of efficiency, even if there are free riders.[/quote]\r\n\r\nPardon, but I don't get the point of your point. Alright, let us change it; revenue. There's no possible way to generate revenue in a efficient manner for lamp posts. What's going to happen? Line up men at lamp posts and forcing passer bys to pay?\r\n\r\n[quote]Without the gun to our heads, someone will find a way to provide these services efficiently despite free riders. Of course, they may not always be successful, because some goods and services are not as valuable as alternatives.[/quote]\r\n\r\nI'll like to see the private sector divide the bill for say defense. A big MNC will surely require and make use of such services more than your average Joe, but it is impossible to place a price down and to enforce payment. \r\n\r\n[quote]For example, let's look at the lamp post. Let's say one person was willing to pay for lamp post. However, no one is willing to help him pay for the lamp post and he doesn't want to pay so much for a lamp post by himself. Now, the man can try to find ways to get others to help pay, which is great. However, if he fails, the electricity from the lamp will be cut off.[/quote]\r\n\r\nWas this your solution? Because cutting off the electricity just because one man doesn't or can't pay is not fair. \r\n[quote]The free rider solution of government purchase with money they have stolen does not take into consideration alternatives, nor does it realize that some goods and services are overall unpopular and a waste of money.[/quote]\r\n\r\nActually...taxation is not stealing. \r\n\r\n[quote]Let's look at trains as public transportation. The government can pay these trains, because they know people wouldn't want to pay for them anyway. The government takes more money from the people they are serving to pay for these trains and now we have government funded trains to take people where they need to go. However, there's a problem. The trains were created to hold 50 passengers a car, but they are averaging only 8 passengers a car. The majority of people paying for the trains aren't even using them! This is what we call government waste.[/quote]\r\n\r\nTrains are not public goods. As you said, if a train can only take 50 passengers, it is already excludable and rivalrous, it is possible to prevent a 51st person from coming on, and the buying of one ticket reduces the chance of another person using the train. Voila, free market at work, the principle being whether you can afford the ticket, and the limited supply. \r\n\r\nHence, not a valid example. \r\n\r\n[quote]So how do we differentiate government waste from public "needs"? When a government pays for a "need", then how do we know if there's a more efficient way to provide that need, or if the need really need be provided in the first place?[/quote]\r\n\r\nThe number of public goods is really quite limited, the main ones are  mentioned already defense and a legal system. Public need or government waste? I think it's rather obvious.

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