Chapter 17 Chapter 17 Externalities and Public Goods

4/14/2014Common Property Resources• A resource, such as a public park, a highway, or the internet,that anyone can access.What’s the problem? Congestion!• On the next graph• Before Q 1 = no congestion (MEC = 0 for Q ≤ Q1)• After Q1, there is congestion ( MEC > 0 for Q > Q1)Your car creates a negativeexternality to other users ofthe highway.(You Impose MEC)• Peak: Too much Q 5 ………B‐E is the toll. It makes each driverinternalize the MEC of the congestion he/she causes, moving toQ 4 , where Dem = MSC.• Off Peak: Too much Q 3 …..M‐N is the (smaller) toll in this period ofthe day, moving to Q 2 , where Dem = MSC.Common Property ResourcesMSC = MPC + MEC12