Question

Explain clearly the theory of public goods.​

Answer 1

Answer:

The theory of public goods was postulated by Paul Samuelson (1954). It states that goods that are collectively consumed are non-rival and non-excludable. ... Rather than pay, many free riders allow others to pay, while they enjoy the show from their windows or yards or from a nearby public area.

The first clear formulation of a theory of public expenditure which can give a positive interpre­tation was presented by poter krut Wicksell and Esik Lindahl. In this formulation, individuals bargain over the level of public goods supply, simultaneously with the distribution of the cost between them. The bargaining equilibrium is Pareto optimal. In addition, each individual pays a price in terms of private goods—which is equal to his marginal willingness to pay.

Voluntary Exchange Model:

It is an approach to the analysis of the provision of public goods which seeks to establish conditions under which these goods can be provided on the basis of unanimous agreement— i.e. without coercion. This may be contrasted with the generally observed arrangement that the provision of public goods is financed by compulsory taxation and not by voluntary agreement.

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