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8 Business Costs and Production -- Part 4
Few goods meet the definition of a public good.
Public parks are usually thought of as meeting the necessary requirements to be a public good.
The parks are both subject to congestion.
Most national and state parks require an admission fee.
Public parks do not meet the definition of a public good.
There are many examples of private parks that protect and conserve the environment.
Natural Bridge is a privately owned and operated park in Virginia that preserves a rare natural arch over a small stream.
Private parks were established before the national park system was established.
Private parks are not the same as public ones.
Understanding the four types of goods gives a solid foundation for understanding markets and the government.
Some of the special challenges that arise in providing nonexcludable goods are considered next.
Costs are easier to quantify than benefits.
If a community puts on a Fourth of July celebration, it is important to determine whether the will have to pay for the fireworks and labor involved in setting up the event.
The costs are known.
Benefits are hard to quantify.
Good outweighs the costs.
The social benefit might be misrepresented in two ways.
Some residents might claim that the fireworks bring more benefit than they actually do because they want the fireworks to continue.
The benefit of the fireworks might be overstated by residents who dislike the crowds and noise.
The social benefit of a fireworks show is hard to measure since there is no way to know how honest people are.
Because people do not pay to enjoy public goods, and because the government provides them without charging a fee, determining the socially optimal amount takes place through the political system.
If the populace believes that the elected officials have not done a good job with their analyses, they don't get reelected.
It's difficult to figure out the social benefit of a fireworks display.
Many countries don't have strict copy right standards.
The result is a black market filled with bootlegged copies of media.
Digital file sharing is so common that you might not be aware of the harm that occurs.
Free- riding is a form of piracy.
Every song and movie that is transferred takes away royalties from the original artist or the studio.
Businesses can't make a fair return on their investments if they violate copyright law.
Consumers of content don't see it that way.
Some people think that breaking the copyright is fair game because they own the object in question or bought it from a friend.
The reality is different.
The law limits free- riding.
Content creators receive compensation for their work when their copyrights are fully specified and enforced.
The amount of music and movies produced will decrease if copyrights are routinely violated.
Society will suffer in the long run because artists will produce less.
Think about the relationship between artists and the public as one that needs the other.
The music you buy or the movie you watch is more of a club good than a public good.
The good is excludable but nonrival.
In a pastoral community, a common pasture shared by local herders could be used.
Herders know that common land is likely to be affected by the depletion of intensively grazed land.
Each herder has the same incentive to overgraze.
Poorly designed incentives and the lack of clearly defined private property rights bring about the overgrazing.
Common ownership can be a recipe for resource depletion and economic disaster.
Private ownership leads to over use.
If his property is damaged or destroyed, the owner can seek damages in the court system.
For common property, joint ownership allows any party to use the resource as he or she sees fit.
Incentives to use the resource are created by this situation.
Common property leads to abuse of the resource.
Consider global warming.
Increasing amounts of CO2 in the atmosphere are linked to global warming.
Everyone is to blame for the negative externality.
The amount of CO2 released and the increase in global warming are larger than optimal because large CO2 emitters only consider the internal costs of their actions.
The air is being used and degraded.
Private property rights allow owners to maintain, protect, and conserve their property if someone else values it more than they do.
The collapse of cod populations off Newfoundland, Canada, in the 1990s is an example of the tragedy of the commons.
Over the course of three years, cod hauls fell from 200,000 to zero.
The cod industry has incentives associated with common property.
The ocean is not owned by anyone.
Fishing grounds in international waters can't be protected.
Fishing grounds within territorial waters are problematic because fish do not adhere to political borders.
It is not possible to maintain the fishing grounds in the same way that one can check the oil in an automobile.
The grounds are too large and the cod population depends on a number of variables.
The idea of maintaining a population of cod in a wild environment is impractical.
Each fishing boat crew wants to maintain a sustainable population of cod.
Other boats would catch whatever the first boat leaves behind, so it's irrelevant if you conserve on the part of one boat.
Boats have an incentive to harvest as much cod as they can before another boat does.
No one has the authority to say how much of a resource can be used.
Maintaining economic activity at a socially optimal level would require coordination of thousands of vested interests.
If a socially responsible boat crew limits its catch in order to protect the species, this action does not guarantee that rivals will follow suit.
Rivals who disregard the socially optimal behavior stand to benefit.
The incentives we discussed under a system of private ownership do not apply because cod are a common resource.
Resources are neglected with common property.
Planning and coordination are required to prevent the tragedy of the commons.
It was too late to prevent the collapse of Atlantic cod because officials were slow to recognize the problem.
The collapse of the fish population became an unprecedented disaster for all of Atlantic Canada's fisheries, just as they placed a moratorium on catching northern cod.
The population of cod dropped to 1%.
The collapse of cod resulted in the loss of 40,000 jobs and over $300 million in income annually.
The communities in the affected region were crippled by this outcome.
The lesson of the northern cod is that Common resources, such as cod, encourage over use.
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