Problem
As a general rule, cities are non-profit organizations and elected officials operate them to provide various services (e.g., trash collection, street repair, etc.). Suppose cities of all sizes across your state/province/region decide to privatize in the sense that they now are profit-seeking. Assume all cities are now corporations and will be run as such. They will issue stock, the stock will be traded on a national exchange (e.g., NYSE), they will have a board of directors which will appoint all city officials, etc. Shareholders will elect members of the board but no one else. Furthermore, the city will no longer have the ability to tax anyone or anything. As is the case with a typical corporation, stockholders would have a share of ownership in the city.
(Some cities (e.g., Cincinnati, Ohio) have a City Manager who runs the day-to-day operations. The elected officials appoint this individual and s/he has no policy-making authority. It is simply an administrative position.)
Question
List and discuss 2 externalities (positive or negative) which would result from having for-profit cities. Clearly state who the recipients are of the externalities as well as the source(s). Remember to choose and clearly state a primary activity.
Solution
- Positive Externality.
- Negative Externality.