Deck with empty Q & A cards for QA

Question 1

What are the 2 main traditions of social order?

Answer 1

Question 2

**What is a public good? Give some concrete examples to illustrate

Answer 2

Goods that are non-depletable and non-excludable

eg. Free to air TV and national defence

Question 3

**What is an externality and how does it relate to public goods?

Question 4

**Why do individuals under-provide public goods when decision making is decentralized?

Question 5

**What is the “free-rider” problem?

Answer 5

Each individual gets a benefit from the contribution of the other, but she pays none of the cost when the other person provides the good

The outcome achieved is Pareto inefficient. It would be strictly better off if they could make different decisions, but this is not compatible with their incentives.

Question 6

**Give an example of an ineffcient Nash equilibrium with provision of public goods.

Question 7

**How can small scale organizations improve on the market outcome?

Answer 7

Question 8

**How can some of the ideas behind the theory be tested?

Question 9

**What is the Samuelson rule?

Question 10

**In what sense is government provision of a public good better than market provision?

Question 11

**Why does it matter how a public good is financed?

Answer 11

trade off between higher public goods and lower prive consumption

The public good has to be paid for with an income tax, this means reducing each person’s income, and hence consumption of good 2, proportionately

Question 12

**Why do redistributive preferences matter for whether a public good is provided?

Question 13

**What is cost-benefit analysis applied to the provision of a public good?

Answer 13

Question 14

What are the solutions to free-rider problem?

Answer 14

Question 15

State the formula for perfect substitutes and complements

Answer 15

Question 16

State 2 samples of public good problem which reflect the logic of free-rider problem

Answer 16

1. The prisoner’s dilemma
2. The assurance game

Both create the possibility of Pareto inefficient outcomes

Question 17

What does the parameter reflect?

Answer 17

It reflects how valuable good one is compared to good two.

Question 18

Run and explain the prisoner’s dilemma payoff matrix and find the Nash equilibrium.

Explain the result.

What is the key assumptions?

Answer 18

Lecture notes week 4-5 p.17

Question 19

Give an example of the application of the free ride problem

Answer 19

Climate change

• Think of i as a country rather than an individual
• And xi is the consumption of low carbon alternative which benefit the other country
• then without some kind of compact, there would be no incentive to cut carbon emissions
• so left to their own devices country carbon emissions will be too high.

Question 20

Run the payoff matrix of the assurance game

Explain the result and concerns

Answer 20

Lecture notes week 4-5 p.26

Question 21

What are the assumptions of using Reciprocal actions (punish/reward) as a solution of free-riding problem?

Answer 21

1. It is possible to detect free-riding
2. Punishments are possible (deter people to face anti-social action, withdrawing cooperation in th future)

This is more realistic in smaller scale forms of cooperation

Question 22

What does the Coase Theorem argue?

Answer 22

It argues that we do not necessarily need government if property rights can be defined.

The market system solves the problem once ownership rights are established.

Question 23

How does the government interfere in the markets for public goods?

Answer 23

Possibility of coercion

1. Consumption can be regulated when it has benefits to others, eg. Compulsory vaccination
2. The government could take over decisions about the provision of public goods, eg defence
   - Use coercive taxing power to fund public good provision
   - Assuming the government cares about social welfare

Question 24

Show how can the government directly regulate provision in prisoner’s dilemma

Answer 24

Lecture notes week 4-5 p.45

Question 25

What are the key observations of government intervention?

Answer 25