Question

Consider the market for safe cities. Someone knocks on your door and asks if you wish to purchase a reduction in crime by subscribing to an enhanced citywide police force. Your city has 1 million residents. (a) What happens if you do not subscribe but all your fellow city dwellers do? (b) What happens if you subscribe but nobody else subscribes? (c) What does this tell you about the possibility of a market for public goods such as safe cities? (d) How might society ensure that desirably safe cities are provided?

Short answer

If you don't subscribe, you still benefit; if you subscribe alone, the safety improvement is minimal. Public goods like safe cities often require government intervention to be adequately provided due to the free-rider problem.

Step-by-step solution

Understanding Public Goods

Public goods are characterized by being non-excludable and non-rivalrous, meaning that one person's usage does not reduce availability for others, and it's difficult to exclude anyone from using the good. Safe cities typically qualify as public goods because every resident benefits from reduced crime, regardless of individual contribution.

Considering Non-subscription Scenario

If you do not subscribe to the enhanced citywide police force, but all other residents do, you still enjoy the increased safety resulting from the collective subscription. This occurs because the reduction in crime benefits everyone, including you, even if you have not made a personal financial contribution. This situation is known as the "free-rider" problem, where an individual benefits without directly paying.

Considering Solo Subscription Scenario

If you subscribe to the enhanced police force but nobody else does, the impact on overall safety is minimal. The resources from your subscription alone are unlikely to significantly reduce citywide crime, so your individual contribution will not bring about the desired level of safety across the city.

Evaluating Market for Public Goods

The scenarios illustrate why private markets struggle to provide public goods efficiently. Since everyone can benefit regardless of individual payment, people may opt not to pay, leading to under-provision, as they wait for others to contribute. The free-rider problem limits the incentives for individuals to individually fund public goods like safe cities.

Ensuring Provision of Public Goods

To ensure the provision of public goods such as safe cities, government intervention is often necessary. This might include taxation to fund public goods, ensuring that all residents contribute, and the total contribution can effectively fund the service to provide the desired level of safety for everyone.

Key concepts

Free-Rider Problem

The free-rider problem occurs when individuals can enjoy the benefits of a public good without contributing to its cost. In the scenario of enhancing citywide police forces, if you decide not to subscribe, but your fellow residents do, you still experience the safer city. This is because the reduced crime benefits everyone, not just those who pay for it.

When people realize they can benefit without incurring any cost, they might choose not to pay, hoping others will cover the expense. This behavior can lead to underfunding of the service since everyone might wait for someone else to contribute.

To address this, society needs a solution where contributions are ensured, such as government intervention through taxation, which compels everyone to pay and enjoy the improvements equally.

Non-excludability

Non-excludability is a core characteristic of public goods. It means once the good is provided, you cannot prevent anyone from utilizing it. In terms of safe cities, once the infrastructure is in place, everyone benefits from reduced crime rates.

This aspect makes it challenging to charge individuals because regardless of who pays, everyone enjoys the protection. Unlike a private good, where consumption is restricted to those who buy it, non-excludable goods like safe cities do not allow for such exclusion.

Without the ability to exclude, providers of public goods might struggle to secure voluntary payments, hindering the availability of those goods unless measures like taxation are implemented to ensure collective contribution.

Non-rivalry

Non-rivalry in public goods refers to the fact that one individual's use does not decrease the availability or quality for others. Safe cities, once funded and operational, will offer protection to all residents without diminishing the safety experienced by anyone when others also benefit.

In contrast, a rivalrous good, like a slice of pizza, can only satisfy one consumer at a time. In the public goods context, however, the safety a city offers can comfortably accommodate all citizens collectively.

This quality makes public goods difficult to manage through normal market channels as people may be less inclined to pay for something they assume will be equally shared, leading to reliance on collective solutions like government programs.

Government Intervention

Government intervention plays a crucial role in providing public goods like safe cities. Since voluntary contributions are unlikely to cover the costs due to the free-rider problem and the non-excludability of such goods, governments step in to ensure widespread benefits through taxation and public service provision.

By collecting taxes, governments compel all beneficiaries to contribute financially, ensuring sufficient resources to maintain and improve community safety. This intervention rectifies the market's inability to efficiently allocate resources for public goods.

Furthermore, governments can implement policies and regulations aimed at optimizing public resources, thereby assuring all citizens enjoy the benefits of a safer environment. This approach helps bridge the gap left by the limitations of private market solutions, offering a structured and equitable way to ensure everyone benefits from public goods.