--%>

Free-rider problem

Explain the two characteristics of public goods? Describe the significance of each for public provision as opposed to private provision. Depict the free-rider problem as it associate to public goods?  Is the Canadian border patrol a public good or a private good?  Why?  How regarding satellite TV?  Describe.

E

Expert

Verified

Public goods are non-rival (one person’s consumption does not avoid consumption by another) and non-excludable (once the goods are generated nobody including free riders can be excluded through the goods’ benefits).  If goods are non-rival, there is less incentive for private firms to generate them – those purchasing the good could just let others the employ without compensation. Similarly, if goods are non-excludable, private firms are unlikely to produce them as the potential for profit is low. The free-rider problem occurs while people benefit from the public good without contributing to the cost (tax revenue proportionate to the benefit attained). The Canadian border patrol is a public good – my use and benefit does not prevent yours. Satellite TV is a private good – if the dish, receiver, and service go to my residence it can’t go to my neighbours. The fact that I could invite my neighbour over to watch does not alter its status from being a private good.

   Related Questions in Finance Basics

  • Q : Distinguish among refinancing debt and

    Normal 0 false false

  • Q : Question on aggregate supply Normal 0

    Normal 0 false false

  • Q : FIN 335: Time Value of Money Problems

    FIN 335: Time Value of Money Problems  Computed on a Texas Instrument BA II Plus financial calculator  Before you start:  ? The calculator com

  • Q : Computing the amount of excess reserves

    Normal 0 false false

  • Q : Expected rate of return Normal 0 false

    Normal 0 false false

  • Q : Companies benefit most from stronger

    What type of U.S. companies would benefit most from a stronger dollar in the foreign exchange market? Describe. U.S. companies which import goods from other countries would benefit from a stronger dollar. More units of foreign currency could b

  • Q : Mergers encourage the formation of new

    Do mergers encourage the formation of new banks? Yes. The increase in the number of new banks in the second half of the 1990s coincides with a surge in merger activity in the similar period. A study conducted through the Federal Reserve Bank of

  • Q : Define operating leverage effect and

    Define operating leverage effect and what causes it? Describe potential benefits and negative consequences of high operating leverage? The operating leverage effect is the phenomenon where a small change in sales triggers a comparatively large

  • Q : Financing costs in capital budgeting

    How are financing costs incorporated generally into the capital budgeting analysis procedure? Usually financing costs are captured in the discount or hurdle rate while doing NPV or IRR analysis. Usually the operating cash flows do not comprise

  • Q : Make mutual and stockholder-owned

    Compare and make mutual and stockholder-owned savings and associations of loan. Some savings and loan associations are owned through stockholders, just as commercial banks and other corporations are owned through their stockholders.  Other