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PUBLIC GOODS - Coggle Diagram
PUBLIC GOODS
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The Free-Rider Problem
How Free Riding Works
- A person who free rides doesn’t pay but still enjoys the benefits. For instance, if someone gets $450 worth of benefit from three security guards but doesn’t pay, they save money while still benefiting from the guards' presence.
- If everyone free rides, no one will contribute, and the public good won’t be provided at all.
Why Free Riding Is More Common in Large Groups
- In small groups, if one person doesn’t contribute, it could reduce the amount of the good for everyone, creating pressure to contribute.
- In larger groups, people feel less responsible for contributing because they assume enough others will pay, making it easier to free ride.
Result of Free Riding
- If too many people free ride, there won't be enough funding for the public good. In extreme cases, it leads to no good being provided at all.
- In large communities, the incentive to free ride is stronger because each person feels like their individual contribution won’t make a difference.
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A Cooperative Method of Efficiently Supplying Pure Public Goods: Voluntary Contributions and Cost Sharing
- Efficient Security Provision: The efficient level of security (three guards per week) is achieved when the sum of individual benefits equals the marginal social cost.
- Cooperative Cost Sharing: To afford this, community members must pool their resources, sharing costs voluntarily, as none can fund it alone.
- Voluntary Contributions: Each member contributes based on their capacity, allowing the community to meet the cost without relying on external taxation.
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