Chapter 19 – Public Goods and Common Resources
CHAPTER 19
PUBLIC GOODS AND COMMON RESOURCES
Chapter Overview
Public goods and common resources are a significant source of market
failure. Generally speaking, unregulated public goods will encounter the free-
rider problem, in which nonexcludability leads to undersupply. On the other
hand, unregulated common-resource goods will fall prey to the tragedy of
the commons, which occurs when nonexcludability and rivalry combine to
cause overconsumption and depletion of the resource.
These challenges can be overcome through a variety of solutions. In some
cases, strong social norms or local organizations can improve excludability
and increase the cost of free riding or overconsumption enough to avoid
market failure. In other cases, government can step in, enforcing bans or
quotas to limit the use of a common resource. Sometimes, it makes sense for
government to simply provide a public good to counteract undersupply.
In general, limits like bans and quotas work only when they are backed by
su&ciently strong monitoring and enforcement. In places where this is not
the case, privatization or combined public-private solutions can harness
individual incentives to manage use and improve excludability. In the next
chapter, we’ll look into the practical details of how governments fund the
provision of public goods and other services.
Learning Objectives
LO 19.1 Define different types of goods in terms of rivalry and excludability.
LO 19.2 Describe the free-rider problem and its consequences.
LO 19.3 Explain how and when problems with public goods can be
effectively solved by social norms, government provision, and expansion of
property rights.
LO 19.4 Describe the tragedy of the commons and its consequences.
LO 19.5 Explain how and when problems with common resources can be
effectively solved by social norms, government regulation, and expansion of
property rights.
Chapter Outline
A NEW TRAGEDY OF THE COMMONS
Characteristics of Goods (LO 19.1)
Excludable Goods
Rival-in-Consumption Goods
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Chapter 19 – Public Goods and Common Resources
Four Categories of Goods
Public Goods
The Free-Rider Problem (LO 19.2)
BOX FEATURE: FROM ANOTHER ANGLE – WHY DOES WIKIPEDIA WORK?
Solutions to the Free-Rider Problem (LO 19.3)
Common Resources
The Tragedy of the Commons (LO 19.4)
Solutions to the Tragedy of the Commons (LO 19.5)
BOX FEATURE: WHAT DO YOU THINK? – SHOULD CONSERVATIONISTS BE
PRINCIPLED OR PRAGMATIC?
BOX FEATURE: REAL LIFE – WHY THE COLORADO RIVER NO LONGER REACHES
THE OCEAN
BOX FEATURE: REAL LIFE – NORTH AMERICAN FISHERIES LEARN FROM
FAILURE
Beyond the Lecture
Class Media: The Tragedy of the Commons (LO 19.3)
Have your students view this South Park clip about peeing in the pool. The
video is already clipped, has extra comments inserted, and has some
paragraphs of commentary on the Critical Commons site where it is hosted.
Tell students to listen for phrases that show the attitude and justification
people give in the situation that leads to a Tragedy of the Commons.
Class Media: Characteristics of Goods, The Free-Rider Problem, and
The Tragedy of the Commons (LO 19.1, LO 19.2, LO 19.3)
Show students this clip from the episode The Pledge Drive from the TV show
Seinfield. In the episode, Jerry hosts a fundraiser for a television station. This
clip can be used to highlight public goods and the free-rider problem.
Class Activity: The Free-Rider Problem (LO 19.2)
An interesting activity to highlight the potential for a free-rider problem is to
pretend to ‘sell’ a course grade to the entire class. Tell students that they will
all receive the same grade regardless of their cash contribution. You can set
the prices for various grades. Discuss the following:
1. Who in the class would be willing to pay? How much would you pay?
Remind them that it is just a game.
2. How would they come to a consensus as a class regarding the choice
of grades?
3. What will students who already expect a good grade do?
4. Can the students think of any ways to address the free-rider problem?
You can then discuss how students deal with the free-rider problem in their
own lives through issues with roommates, group members in a team for a
class project, etc.
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Chapter 19 – Public Goods and Common Resources
Writing Assignment/Class Discussion: Bans, Quotas, and
Government Provision (LO 19.5)
Have students read this brief article from the Wall Street Journal on crab
fishing regulations. In the article, the author discusses the regulations that
are set in place to limit the number of crab caught to avoid overfishing.
Previous regulations set a quota for the entire industry, and firms raced to
catch crab before the quota was filled. The article discusses the new
regulations.
1. How could regulation be used to protect against overfishing?
2. What was the problem with the old quota system? How is the new
system an improvement?
3. What are some problems with the use of regulation to address a public
goods problem?
Clicker Questions
There are three main purposes to clicker questions. First, they are a great
way to do a quick and instant “on demand” test of student understanding of
the material. You can cover material, and instantly get feedback on student
comprehension. You can see whether you need to explain certain topics
again, or move on to the next subject. Second, they are a great method to
break up the class and take a moment away from lecture. It gets the
students actively involved. Finally, certain clicker questions can be framed in
a “discussion” manner, in which you can invite students to talk about the
possible right answer with their peers. You can instruct students to convince
their classmate of a right or wrong answer.
1. Which of the following goods is excludable but non-rival? [LO 19.1]
A. Cheeseburger at a fast food restaurant
2. The “free rider” problem can mainly occur when a good is ____________.
[LO 19.2]
A. rivalrous
Feedback: If a good is non-excludable, people can consume and enjoy it,
even if they don’t pay for it. They take a free ride to get the benefits with no
costs.
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Chapter 19 – Public Goods and Common Resources
3. Which of the following is most likely to be an example of tragedy of the
commons? [LO 19.3]
D. Lack of parking spaces downtown
Feedback: Pollution is really more of an externality example. The science
center could be a free-rider example, but not the tragedy of the commons.
4. Sometimes governments make activities (littering, poaching) illegal in
order to discourage the behavior. Why are the punishments so severe for
these activities? [LO 19.5]
A. Because of the high value we place on beautiful landscapes and rare
rhinos
Feedback: Think about it. If the rhino ivory is worth $2,000 but the fine for
poaching is only $200 (and you might not even get caught poaching), it may
be worth it to poach! Thus, the fines must be large and accompanied by jail
time to su&ciently deter poachers.
5. How can property rights and private ownership of goods protect common
resources? [LO 19.6]
A. It will cause people to hoard resources
Feedback: When you own something, you’ll take care of it. It means you’ll
treat it just as well as your own private goods, such as your electronics, car,
or home.
Solutions to End-of-Chapter Questions and Problems
Review Questions
1. Popular software can cost thousands of dollars even though the marginal
cost of producing another copy on CD or via download is near zero. What
kind of good are these programs? [LO 19.1]
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Chapter 19 – Public Goods and Common Resources
Answer: Copies of software are excludable—it is possible to restrict
people from accessing software unless they purchase a license. Because
2. Suppose a popular band decides to hold a free concert in its hometown.
Admission is available on a first-come, first-served basis. Is the concert a
public good? [LO 19.1]
Answer: No. A good o-ered for free is not necessarily a public good.
Concerts are excludable. It is possible to charge an entrance fee. And
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Chapter 19 – Public Goods and Common Resources
3. A talented musician plays for tips on the street but never seems to make
very much money. Explain why his tip jar is never very full. [LO 19.2]
Answer: The musician does not make a lot of tips because of the free-
rider problem. The street musician cannot exclude people who do not tip
from stopping to listen. People can listen to and enjoy his music for free
and hope that others will tip him so he returns and continues to entertain
them.
4. Suppose a community garden in your neighborhood has both individually
owned plots and a large, common plot. If soil and sunlight conditions are the
same everywhere in the garden, explain why tomatoes grown in individually
owned plots are so much better than tomatoes grown in the common plot.
[LO 19.2, 19.4]
Answer: The musician does not make a lot of tips because of the free-
5. Why is it di&cult for private markets to provide the optimal quantity of a
public good? Why is it di&cult for government to provide the optimal
quantity of a public good? [LO 19.3]
Answer: It is di&cult for private markets to provide the optimal quantity
of a public good because, by definition, a nonrival good has zero marginal
cost of providing the good to another user. If e&cient pricing is P = MC,
6. Consider a fund-raising campaign for your school’s library. What is the
free-rider problem in this situation? How might publicly listing the names of
donors to the library fund affect this problem? [LO 19.3]
Answer: The free-rider problem is that people will be tempted to let
others contribute to the library fund-raiser even though all members of
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Chapter 19 – Public Goods and Common Resources
7. Aquifers are underground sources of clean water that stretch over
thousands of square miles. People who own land over the aquifer are free to
take as much as they want. What is likely to happen to water supplies in an
aquifer? Is this e&cient? [LO 19.4]
Answer: Water supplies in an aquifer would be expected to fall from
8. Which do you expect to be more sustainable: grazing on public land or
grazing on privately owned pastures? Why? [LO 19.4]
Answer: Grazing on privately owned pastures should be more sustainable
than grazing on public land because private land owners have an
9. Even though many school zones don’t have much tra&c and aren’t
regularly monitored by the police for speed, most drivers are very careful to
drive at or below speed limits when near schools. Why might this be the case
even in the absence of strong government intervention? [LO 19.3, 19.5]
Answer: Most people are likely to respect the importance of looking out
for the safety of children. People might drive cautiously not because they
10. Consider a proposal to privatize street lighting. Would this be feasible?
Why or why not? Does street lighting suffer from a tragedy of the commons
problem? [LO 19.3, 19.5]
Answer: It would not be feasible to privatize street lighting because it is
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Chapter 19 – Public Goods and Common Resources
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Chapter 19 – Public Goods and Common Resources
11. The government of India has made killing Bengal tigers illegal, but
poaching of the endangered animal continues. List some possible reasons
that the ban hasn’t been very successful, and suggest an alternative
approach. [LO 19.5]
Answer: Making something illegal is not e-ective if the punishment is
weak or if there is not strong monitoring and enforcement. If poachers
12. The U.S. government is concerned about the huge numbers of people
converging on Yellowstone Park every year. Government o&cials are worried
that the park might be getting overused and the natural beauty will be
ruined as a result. Suppose someone suggests dividing the park into private
lots and selling it to individuals. How might this solution address the tragedy
of the commons that is occurring? [LO 19.5]
Answer: Dividing the park into private lots and selling it to individuals
would address the tragedy of the commons problem because each land
Problems and Applications
1. Identify whether each of the following goods is usually excludable or
nonexcludable. [LO 19.1]
a. AM/FM radio.
b. A round of golf on a course.
c. Street art.
d. A museum exhibition.
e. Toll roads.
Answer: When a good is excludable, it is possible for sellers to prevent its
use by those who have not paid for it.
a. Nonexcludable.
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Chapter 19 – Public Goods and Common Resources
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Chapter 19 – Public Goods and Common Resources
2. Identify whether each of the following goods is rival or nonrival. [LO
19.1]
a. Cable TV.
b. A pair of jeans.
c. Street signs.
d. Attending a baseball game.
Answer: When a good is rival in consumption (or just rival), one person’s
3. Consider community safety or defense, meaning freedom from crime and
threats, to answer the following questions. [LO 19.2]
a. What sort of good is community safety?
b. If you lived in a place with no government-funded police force, would you
expect community safety to be oversupplied or undersupplied?
c. Suppose that some neighbors get together and organize a block watch
group. What term do economists use to describe someone who lives in the
neighborhood but chooses not to volunteer as part of the block watch?
Answer: The free-rider problem occurs when the non-excludability of a
4. From the list below, which of the following do you expect to suffer from a
free-rider problem? Check all that apply. [LO 19.2]
a. Pay-what-you-can yoga classes.
b. Unlimited yoga classes with monthly membership dues.
c. Fundraiser for public television.
d. Neighborhood park cleanup day.
e. Housecleaning business operating in your neighborhood.
f. Suggested museum-admission donation.
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Chapter 19 – Public Goods and Common Resources
5. Which of the following subway announcements are attempts to establish
or enforce a social norm? [LO 19.3]
a. “Loud music and phone conversations are discourteous to fellow riders.
Please keep the noise down.”
b. “If you see something, say something.”
c. “Please watch your step as you exit. Be careful of the gap between the
train and the platform edge.”
d. “Please be patient and allow others to exit the train before you attempt to
enter.”
e. “The train is being held at the station due to tra&c ahead. We apologize
for the inconvenience.”
6. Would you expect tourists or locals to be more likely to give up their seat
on a bus to an elderly person? [LO 19.3]
Answer: Locals would be more likely to give up their seat on a bus to an
7. Consider the following government-provided goods. Which of these goods
necessarily require funding via general taxation (as opposed to direct user
fees)? [LO 19.3]
a. Street lights.
b. A park.
c. A fireworks display.
d. Public radio.
e. A library.
Answer: a, c, and d. Each of these require general taxation instead of
8. In much of the United States and Canada, logging takes place in both
privately owned and government-owned forests. [LO 19.4]
a. Are privately owned forests excludable? Are they rival? What type of good
are they?
b. Suppose that anyone is legally allowed to enter a government-owned
forest and start logging. What type of good are these forests?
c. Do you expect the rate of logging in government-owned forests to be
faster, slower, or equal to the e&cient level?
Answer:
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Chapter 19 – Public Goods and Common Resources
9. Suppose that the government decides to start regulating use of its forests,
charging anyone who wants to log. Which of the following ways of
calculating the price to charge for each acre will lead to an e&cient
quantity of logging? [LO 19.4]
a. The sum of the marginal social value of each acre to all logging
companies.
b. The average price citizens say they would be willing to pay for an acre.
c. The external cost that logging an acre imposes on all citizens.
10. Determine whether each of the following policy interventions is
designed to increase supply or decrease demand for a public good or
common resource. [LO 19.3, 19.5]
a. A city government increases the frequency of street sweeping.
b. London begins charging a toll to all vehicles that drive within the city
limits.
c. A gated community passes a bylaw requiring all homeowners to mow
their lawns once a week during the summer.
d. The National Park Service increases the cost of a pass to enter the
Everglades.
Answer:
a. Increase supply.
11. Public-opinion polls in a small city have revealed that citizens want
more resources spent on public safety, an annual fireworks display, and
more community swimming pools. Which of these three citizen requests
could be privatized by assigning property rights? [LO 19.5]
Answer: Swimming pools could be privatized by assigning property rights
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Chapter 19 – Public Goods and Common Resources
12. For each of the following examples, state which of these approaches is
being taken to manage a common resource or supply a public good: social
norms, quota, tradable allowance, government provision, or property
rights. [LO 19.3, 19.5]
a. A nonprofit organization spray-paints signs on storm drains reminding
everyone that it “drains to the ocean” with a picture of a fish.
b. A city starts a free program that collects recyclable glass, paper, and
plastic from residents’ doorsteps.
c. In England, municipal-waste authorities are given a percentage of an
overall limit that can be put in the landfill each year. These percentages can
be traded among municipalities.
d. American bison, which once roamed freely across the Great Plains, are
now raised on ranches for commercial purposes.
Answer:
a. Social norms.
13. There is a road between the suburbs and downtown. The road becomes
congested at rush hour. As long as fewer than 100 people use the road at
rush hour, the trip takes 30 minutes. When the 101st person enters the
road, everyone has to slow down and the trip now takes 31 minutes.
People value their time at $6 per hour (i.e., $0.10 per minute) and so a 30
minute trip costs $3. [LO 19.5]
a. What is the private cost of one of the 100 individuals using the road? What
is the total private cost of 100 people using the road? What is the total social
cost of 100 people using the road?
b. What is the total social cost of 101 people using the road? What is the
private cost of using the road for the 101st individual? What is the external
social cost of the 101st person using the road?
Answer:
a. Private cost of one individual = 30 minutes × $0.10 = $3.
b. Total social cost = 101 people × 31 minutes × $0.10 = $313.10.
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Chapter 19 – Public Goods and Common Resources
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