Monday, February 8, 2010

Econ 539-Public Policy Analysis: Public Goods

Driving down to Corvallis this morning I had ample time to listen to the seemingly endless appeals for donations from OPB during their current pledge drive. One line in particular caught my ear - Geoff Norcross said something to the effect of: 'we have a good idea of how many listeners we have and we know exactly how many members we have, the gap between these two is pretty small, but we'd like to make it smaller...'

To me, this statement is incredible. I looked in vein for these statistics for OPB, but for WNYC in New York City, the number of people who donate relative to those that listen is less than 8% according to sfigures I have seen. So, I can't believe that OPB is above, say, 20% and I bet it is closer to 10%.

Which is the point of today's lecture: for goods that are like radio - have some degree of non-excludability (anyone can listen) and non-rivalry (one person's consumption does not leave any less for anyone else) - the private sector does not, in-general, provide an optimal amount of them. Thus the public sector may have a role in providing such goods: parks, roads, national defense, etc. But even the public sector may have trouble in providing them.

In both cases the free rider problem can be severe, just like with public radio. I know as an individual that if I don't contribute I can free ride on the contributions of others.

We will look at examples of public goods and revisit business improvement districts. new bridges and have a look at the example of Colorado Springs whose voters have failed to fund some basic city services.

Update: I realized in my haste that I never connected the dots. The reason OPB wants you to think the gap is small is that the social pressure is presumably greater if you think you are one of the few who don't contribute rather than one of many. A colleague brought my attention to a paper that finds exactly this result (and confirms that my 10% hypothesis is probably not far off).

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