See attached for question.
Criteria for answering question
Provided an analysis of pricing of public goods.
Used an appropriate graph for the analysis.
Explained how streetlight is a public good.
Analyzed and used an appropriate graph for the pricing problem of public street lights.
Evaluated the efficiency of the pricing method.
Imagine that you are an expert on public goods. The mayor of your town asks you to design a way to charge each person walking or driving down a street for consumption of streetlight. What type of solution will you propose? Give reasons for your solution. Will it be an efficient pricing method? Why or why not?
Create a data file in Microsoft Excel and plot the graphs as mentioned in the criteria.
Create a Microsoft Word document to present an analysis based on the graphs.
The spreadsheet is not the prettiest, but the data is there and reflects my calculations. It should be enough to get you pointed in the right direction.
David Lee said, "no positive price for a public good is consistent with consumption efficiency as it will discourage consumption that could be provided at zero cost" (Lee, 1978). This would imply that people are not willing to pay for public goods. This is not necessarily the case as people pay every month for lights, gas, and water. Reducing individual consumption would in turn reduce individual costs in this situation, however we are looking at charging people to use streetlights.
Public goods are goods that are based on joint consumption and have a real size or value that is difficult to determine or calculate - and lack clearly identifiable owners. Streetlights would fall into the category of public goods as they are placed in both public and private locations regardless of the population. They are a public safety feature and as such should be considered a public goods - arguably under the free-rider problem (where people benefit from a good without contributing to its cost (McConnell and Brue, 1999)). In this situation, the market fails to provide an efficient outcome since people have no incentive to pay, but to be free-riders (Mankiw, 2007). So for the sake of this simulation, we will require government intervention. Mankiw (2007) says, if the total benefits of a public good exceeds the total ...
Here are some thoughts and calculations on charging people for driving or walking under the street lights in a city.