Free Riders and Public Goods — Real and Fake

One of the first things you learn when you study public welfare economics or public choice theory is that the private provision of public goods runs up against the problem of free riders — people who benefit but don’t pay. This is one of the core justifications for the governmental provision of public goods such as police and fire protection, and for the funding of those services through compulsory taxation. One of the things you learn later is that there is some debate over what exactly qualifies as a public good. And in some courses you also learn that rent-seeking businesses like to masquerade as suppliers of a public good in order to get subsidies they do not deserve.

Our modern experiment with gutting local, state, and now national government in the names of low taxes and privatized profit while simultaneously offering handouts to well-connected corporations provides telling reminders of each of these lessons.

The most recent of these is the Hallandale Beach lifeguard who lost his job for saving a life. Unfortunately for Tomas Lopez, he left his station in the lifeguard zone unattended in order to save a swimmer in distress in the no-lifeguard zone. As the nation now knows, Lopez got fired for that dereliction of duty (and then got offered his job back when the media howls began).

Lopez’s employer would have preferred Lopez act like the fire department in Obion County, TN that just watched while a home burnt to the ground because the homeowner hadn’t paid his household subscription fee to the local fire department.

And of course the Affordable Health Care Act’s ‘mandate’ raises similar issues, in that it tries to penalize free riders who might choose not to buy insurance, perhaps counting on public provision of emergency medical care.

Meanwhile, across the nation, we give corporate welfare to stadiums and other businesses that promise usually dubious local benefits. Here in South Florida, the latest example is Jungle Island. Once a great offbeat local attraction known as Parrot Jungle, the management sold their lovely grounds in Kendall for a development and with the fig leaf that it would be good for jobs, development, and tourism, they got the City of Miami to give them a loan not even a bank would have agreed to. They built an unattractive park in an out-of-the-way location, and overcharged to see it. Unsurprisingly it went bad, and as the taxpayers are the last to be paid rather than the first, we haven’t seen any of our money back. Instead they’ve gotten further subsidies. Equally unsurprisingly, the Jungle Island people have a proposed solution: the city should double down and give them more land and more money so they can build a hotel. At least this one isn’t going under the radar.

The moral of the story is that we need the government to support true public goods: police, fire, basic health care — but not tourist attractions. How sad we so often have it backwards.

Incidentally, to an economist, the lifeguard question is harder than it may seem: one optimal solution in a basic microeconomics textbook would probably be to charge admission to the beach and use that to pay for the lifeguard. Second-best would be to make clear where was protected and where wasn’t (which is what Hallandale Beach did), and let people choose, so long as there isn’t a risk of gratuitous rescue.

In a public welfare frame, though, we’d ask if there’s a public cost to letting people drown — if it makes us feel bad maybe it’s not worth the financial savings. Or, if we think that swimmers can’t be trusted to make good decisions about their safety, we might make a parentalist decision to provide lifeguard services whether swimmers know enough to demand them or not. Alternatively, if we think beaches are a public good and charging for them would depress their use below the optimum, then it would be wrong to charge for access them in which case it makes sense to treat lifeguarding as a public good too.

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9 Responses to Free Riders and Public Goods — Real and Fake

  1. Just me says:

    Great post. It drives me crazy when I see deals like the Parrot Jungle deal and the Marlins Stadium deal. Don’t we have better things to spend our money on in South Florida?

    On the other hand, the new park in Pinecrest at the old Parrot Jungle site is lovely.

  2. Speaking of free riders, have you resumed your donations to NPR? (see http://www.discourse.net/2011/10/one-to-go.html).

  3. How do you reconcile your position on the stadium versus high speed rail, which you supported (see http://www.discourse.net/2011/02/gov-voldermort-turns-down-2-4-billion-in-job-creation-money-for-florida.html), in part, simply because it was stimulus and would probably have primarily benefited tourist attractions?

    Given the % tourism makes up of Florida’s GDP, I don’t see how one can make a broad statement that there is no role for the state to play in promoting it. We just need politicians who are not corrupt and know a bad deal when they see one. Cities can get a good deal out a sports team if they play their cards right. (see http://en.wikipedia.org/wiki/Green_Bay_Packers#Public_company).

    • I see no conflict. Mass transit is almost always a public good. It’s a micro textbook classic. I forget all the details, but it takes cars off the road, which benefits other drivers. It uses fewer resources, which benefits everyone by lowering prices and pollution. So being for a subsidized national rail system (or a local bus system!) is fully consistent with supporting the provision of public goods.

      The case for stimulus is, in the main, a macro Keynesian one. Once one decides the size of a fiscal stimulus the economy needs, the next step is to figure out ways to spend it that will in fact be stimulative (usually by creating a lot of employment). Often that means public works. Public works on things that are public goods are especially nice — thus roads, rail, bridges and so on.

      I don’t recall arguing that supporting tourism was a good use of stimulus funds, and there’s certainly nothing at that link which suggests I did. I don’t have much a view about that, although I’m a little suspicious. As I noted previously, I wasn’t a great fan of the Miami-Orlando rail idea on its own; as part of a national network it seemed to make more sense. I suppose to the extent that promoting tourism means building infrastructure tourists like (sand on the beach, free wifi in the streets, good transit, friendly police, lifeguards), I can see it. Subsidies to hotels? No thanks. That seems like a job for the market to me.

      The stadium deal was a bad idea in the abstract, and was doubly bad in its particulars: (1) it plays into the raced to the bottom between cities that are getting played by professional sports teams and think if they do not give the team/arena huge subsidies for fear the team will run off into the arms of some other city with a bigger checkbook. And (2) as a result, the tax money serves to increase private profits, rather than being a sound investment for the city.

      If we really think sports teams are a public good, we should own them and run them at a loss, raffling off cheap tickets. There’s no case I can see for subsidizing luxury skyboxes. I can’t believe that the NFL was allowed to make a rule prohibiting any future Green Bay style ownership. That prohibition is just wrong.

      • “Mass transit is almost always a public good.”

        Maybe so, but to me mass transit connotes something other than what was envisioned as light rail in Florida. Specifically, my understanding was that tourists could be persuaded to extend their stays in Florida by easily adding Orlando or Miami as a second venue, or that locals in either city would make weekend trips. A completely different animal than Tri-Rail, in that I don’t think anybody anticipated workers commuting daily along the light rail line. Apparently you had some other understanding of that light rail project other than a boost to tourism, but that is why I asked you to reconcile support for it with your statement of general opposition to state-supported tourism. I don’t see much difference between the different methods (tourist transit vs. tourist attractions) if the ultimate goal is to increase tourism. The ultimate question should be the same, whether the tax payers are getting a good deal on their investment or not.

        “If we really think sports teams are a public good, we should own them and run them at a loss, raffling off cheap tickets.”

        The problem with your theory (actually the same that underpins the failure of most progressive theories) is that it fails to account for the fact that a non-trivial portion of the population believes that winning is relevant.

        • The problem with your theory (actually the same that underpins the failure of most progressive theories) is that it fails to account for the fact that a non-trivial portion of the population believes that winning is relevant.

          Can you expand on that please? Green Bay wins a lot.

          If you mean that the public thinks only winning teams are a public good, and losing teams are not or even are a public bad, then it’s clear that stadiums are a bad public investment, since mathematically most teams in most cities will not win championships.

  4. Pingback: Links for 07-07-2012 | FavStocks

  5. Tom says:

    The Bass Pro Shop owner — Johnny Morris received money from sales tax to open Wonders of Wildlife in Springfield, MO. The charge for admission was way to high so attendance was terrible but they were still getting 1/8 cent sales tax so after five years of bad performance they have been in another three years of renovation (closed while renovating while still receiving the tax). Springfield is too small a town for a real investigation of what went on. Talk about your free rider. Give me mass transit.

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