Slides from a lecture given at Chiang Mai University to an Executive Education MPA class prior to an in-class Fishbanks Simulation exercise.

1. Public Goods & Common
Pool Goods
William P. Kittredge, PhD
Visiting Professor of Public Finance and Public Policy
Chiang Mai University
Faculty of Political Science & Public Administration

2. Introduction - Professor
 Visiting Professor at Chiang Mai University Faculty of
Political Science & Public Administration
 U.S. Department of Commerce, Director of National
Programs and Evaluation
 USG OECD representative for development policy
 Faculty positions at Carnegie Mellon University &
University of Georgia SPIA

3. Goods
‘Goods’ means goods and services
Goods are divided based on two
characteristics:
– Rival
– Excludable

4. Rival
Rival
 Consumption by one prevents or significantly
reduces consumption by others
Not Rival
 Consumption does not prevent or significantly
reduces consumption by others

5. Characteristics - Excludable
Excludable
 Can be prevented for consuming, even if they
do not pay
Not Excludable
 Cannot prevent consumption once created

6. Types of Goods
 Private
 Your car
 Can of Coke
 Common Pool
 Ocean fish stocks
 Irrigation system
 Public
 Lighthouse
 National Defense
 Club or Toll
 Cable TV
 Toll Roads
 Congestion
limitation
Excludable Not Excludable
Rival
Not Rival

7. Markets
A market is a system where parties engage in
voluntary exchange.
In markets sellers offering their goods or
services (including labor) in exchange for
money from buyers.
Excellent for private goods
 Other goods, less efficient
 Some goods ‘market failure’

8. Private Goods
 Rival
 Consumption by one prevents or significantly reduces
consumption by others
 Your pencil
 Your car
 Excludable
 Can be prevented for consuming if do not pay
 Taking a pencil or car without paying is a crime

9. Toll or Club Goods
 Not Rival
 Consumption by one does not prevent consumption
by others
 Roads
 Internet, cable or satellite TV
 Excludable
 Can be prevented for consuming if do not pay
 Toll roads

10. Toll or Club Goods → Congestion

11. Market Failure
 Markets do not work if the good in question has public
good characteristics, the good is not rival and not
excludable
 Dhaka, Bangladesh private trash collection led to
market failure
 The key problem with private garbage collection is the
free rider problem–with a private, voluntary system, each
resident could simply sneak his garbage into his
neighbor’s garbage and avoid making payments.

12. Market Failure
 Eventually, everyone figures this out, and no one
would pay trash collection voluntarily.
 In fact, most residents figured out the incentive to
“free ride”, the market fails & trash piles up
 Uncollected trash produces public ‘bads’ including
disease and offensive odors

13.  ‘Market failure’ is a situation in which the
allocation of goods and services is not socially
efficient.
 In the Dhaka example, the private collection of
trash market failure produces negative social
impacts that markets can not, or will not,
address.
Market Failure

14. Public Goods
 To correct the market failure, government
produces or provides the public good.
 Production – a government agency makes the
good – national defense
 Provision – government pays others to make
the good – contracting with private firm or an
NGO or Public-Private Partnership

15. Public Goods
 Pure public goods have two characteristics:
 Not rival: the marginal cost of another person
consuming the good is zero, and does not affect your
consumption
 Not excludable: it is impossible or impractical to
deny consumption once the good exists
 Examples: A light house, national defense.

16. Public Goods
 The aggregate demand for private goods is found by
summing the individual demands
 Demand for public goods is determined through the
political system

17. Thailand - Merit
 More socially oriented activities such as building a
hospital or bridge, or giving to the poor are
considered meritorious by many Buddhists.
 Therefore, it may be that merit making is alternative
to public production or provision of public goods.
 Examples: community enterprises, social enterprises

18. Recap of Public Goods
 Optimal provision of public goods
 Public production
 Public provision – private production
 NGO contracting
 Public-private partnerships
 Private provision & production
 Social enterprises
 Community enterprises

19. Common Pool Goods
 Man made
 Irrigation system
 Litter in public places
 African relief for nomadic cattle owners
 Natural
 Common grazing grounds
 Forests
 Ocean fish stocks

20. Tragedy of the Commons
 In 1832 William Forster Lloyd, a political
economist at Oxford University, looking at the
recurring devastation of common (i.e., not
privately owned) pastures in England.
 Over-grazing of these ‘commons’ led to
depletion and exhaustion of the grazing land.
 He called this the Tragedy of the Commons

21. Tragedy of the Commons

22. Tragedy of the Commons

23. Tragedy of the Commons

24. Tragedy of the Commons

25. Common Pool Goods
 Rival
 Supply is finite
 Supply may be very large – seems inexhaustible
 Excludable
 Exclusion is impossible or impractical

26. Common Pool Management Outline
 International management begins with
voluntary agreements governing the use of
common pool resources
 The principal incentive for international
management schemes is the common threat
associated with exhausting the the common
pool resource

27. Global Common Pool Agreement
 The Kyoto Protocol (1997)
– Reduce the emissions of greenhouse gases,
gases that disrupt the global climate
 Canada - United States Air Quality Agreement
(1991)
– Manage various trans-border air quality
issues

28. Your Challenge
 Fishbanks Game: the common pool ocean
fish resource.
 3 Teams will be formed as fishing companies
sharing the ocean fish stocks
 At the end of the simulation, a brief
discussion of the outcome
 We gratefully acknowledge and thank our
colleagues at MIT Sloan School for providing
the Fishbanks Simulation online.

29. References
 Copeland, Brian R.; M. Scott Taylor (2009). "Trade, Tragedy,
and the Commons". American Economic Review. 99 (3): 725–
49. doi:10.1257/aer.99.3.725
 Ostrom, Elinor (1990). Governing the Commons: The
Evolution of Institutions for Collective Action. Cambridge, UK:
Cambridge University Press. ISBN 0 521 40599 8
 Ostrom, Elinor (2003) "How Types of Goods and Property
Rights Jointly Affect Collective Action", Journal of Theoretical
Politics, Vol. 15, No. 3, 239-270 (2003).