Topic: Markets do not efficiently distribute public goods. Public goods are items that people can get without paying for them. When goods are public, an individual has an incentive to be a free rider – a consumer who enjoys the benefit of the good or service without paying. However, defining a public good is not always clear-cut. A fundamental economic concept is that if the government does not allow individual property rights, the market cannot efficiently distribute goods, resulting in market failure. In the following discussion, consider how the efforts of governments to privatize goods once considered public may result in superior products.
Review the case study titled “Privatizing Public Activities” starting on page 373. Answer the following questions:
What are the incentives of government bureaucrats who run public services such as the water services, the parking services, and the airports? Do these incentives differ from those of private companies in running these services? Why or why not?