Question

In many large cities, the government operates a museum, library and park that are visited by a substantial number of people who are not residents of the city. What economic reasons would justify the city financing these services through user charges? What problems would user-charge financing present in these cases? What should the charge be based on, or how should it be structured

Answer 1

There are economic reasons as follows:

A. These libraries, parks and museums attract people from other cities and it makes them create demand in the city, fuelling the local economy.

B. Collection of user charges helps in maintaining the park, museum and other such places and it also prevents these places from being public good. So, charging user charges, prevents the scope of free rider problems.

C. Museums and other such places represent the rich culture and historical development of the city and it spreads popularity. Due to this, more visitors come and more revenue is generated for the maintenance of these places.

Though there will be problems with the financing via user charges. The first problem is that user charges can act as a deterrent and people can stop visiting these places. The second problem is the lack of sufficient revenue being generated via the user charges. It will not be able to serve the purpose of government of claiming the user charges. The third problem is the demand of quality services being made by the visitors that may not be met by the government.

Here, charges should be based upon the value added services being delivered to the visitors. For different types of services, different charges can be placed and people will pay for it. Further, the government can give sponsorship of management of these places to the third parties who can take care of these places, bring some quality services and able to attract visitors in bigger capacity so that these avenues can be profitable.