1.2.1 The existence of “public goods” is an example of potential market failure and suggests that a government or public sector can improve the outcome of completely free markets.

Write a brief summary of the arguments for government provision of public goods. (Make sure you consider the discussion of a prisoners’ dilemma in Chapter 14.)

The following three arguments suggest that government may not improve the outcome as much as we might anticipate.

a. Public goods theory: Because public goods are collective, the government is constrained to pick a single level of output for all of us. National defense is an example. The government must pick one level of defense expenditure. Some will think it is too much, some will think it is too little, and no one is happy.

b. Problems of social choice: It is impossible to choose collectively in a rational way that satisfies voters/consumers of public goods.

c. Public choice and public officials: Once elected or appointed, public officials tend to act in accordance with their own preferences and not out of concern for the public.

Which of the three arguments do you find to be most persuasive?