Pursuit of Truthiness

my gut tells me I know economics

Public Goods are not Consumed Equally

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We discussed public goods in Micro Theory yesterday, and it was asserted that they are always consumed equally by all parties, whether they are the two consumers in a Kolm Triangle or everyone in a nation or world.  Our professor usually points out assumptions that seem very strong or unrealistic, but he seemed to endorse this one without reservation.

Myself, I don’t see how this comes close to holding for any definition of “public good”, “consumed” or “equally”.  Consider national defense, the archetypical public good.  I don’t think anyone would contend that all Americans pay for national defense equally or derive the same utility from its provision.  The assumption is that we all receive the same “amount” of national defense, though this is admittedly hard to measure (perhaps we get two Major Theatre Wars worth).

In reality though, some members of a nation receive more military protection than others, and often the scarce resources of the military are used to protect some people at the expense of others.  Historically, armies were used to protect the people near a frontier, often from threats that had no chance of harming those in the interior.  The US used forts and raids to protect frontier Americans from Native Americans who posed no threat to those in major east coast cities.  Today our War on Terror is supposed to prevent terrorism, and so benefit people in New York City and Washington more than those in rural Kansas or Montana.  In a two-front war, the military must allocate resources between fronts.  For instance, in WWII the US prioritized the European theatre over the Pacific, so that east coast citizens received more defense resources than those in the west.  Today US forces arrayed against North Korea provide much protection to South Koreans but very little to the majority of Americans one would think to be the relevant “public”.

Other kinds of “public” goods are even more obviously consumed at different levels.  Those without cars don’t “consume” public roads as much as those with them, those without televisions don’t consume public TV, those without boats don’t get as much out of lighthouses.  Even knowledge, especially when broken up into various subdomains, is not consumed equally and in some cases perhaps cannot be consumed directly by all people (if they are not capable of understanding it and it has no “practical” uses).

This seems to be an open and shut case of a super-unrealistic assumption.  So the next questions for an economist are, how much does the math and the theory of public goods rely on it?  Can we generate results if we relax it, and if so what are they?  Have people done this already?  These are the questions I will be thinking about in our further study of public goods.

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Written by James Bailey

September 15, 2010 at 1:23 pm

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