Question

Explain why democracy can choose inefficient amounts of public goods.

Answer 1

Answer :-

First we have to understand public goods, then we will see how democracy can choose inefficient amounts of public goods.

A public good is a product that an individual can consume without reducing its availability to others and of which no one is deprived. Examples of public goods include law enforcement, national defense, sewer systems, public parks, and the air we breathe. As those examples reveal, public goods are almost always publicly financed.

A public good must generally be both “non-rivalrous” and “non-excludable.” Non-rivalrous means that the goods don’t dwindle in supply as people consume them. Non-excludability means that the good is available to all and cannot be withheld, even from people who do not contribute to its public funding.

Public goods create market failures if some consumers decide not to pay but use the good anyway. National defense is one such public good because each citizen receives similar benefits regardless of how much they pay. It is very
difficult to privately produce the optimal amount of national defense.

I have argued that although public goods are sources of market failure, and that govern-
ments can sometimes intervene to improve the outcome, widespread demand for public
goods is, at best, a necessary condition for government intervention. There is no auto-
matic link between demand and welfare, and the link is especially tenuous in the case of
public goods because people have less incentive to become informed about goods
which they lack the power to unilaterally produce or consume. In markets, poorly
formed preferences are punished because buyers bear the costs of bad choices. In the
political realm, this is rarely true since individual citizens have little power to decide
through consumption or voting which public goods will be provided. This suggests that
before policy makers decide to address a public goods problem with the machinery of
government, they should consider whether demand for public goods stems from well-
formed desires, whether the costs of public provision exceed the benefits, and whether
markets will, all things considered, produce a better or worse outcome than government
action.