Thursday, April 02, 2009

The SSIP, Public Goods And Free Riders

I promised that I would discuss some of the problems behind an event like the recently-cancelled South Side Irish Parade. As I see it, the issues at stake here emerge from two separate but related concepts. Those concepts are the notion of public goods and the corresponding free-rider problem.

I intend to discuss these concepts and how they might relate to an event like the SSIP. In my final post, I will suggest some possible solutions derived from these concepts and the other (possible) issues related to the event.

Public Goods

Typically, when one asks how to define public goods, the answer usually involves the terms "non-rivaled" and "non-excludable." Blank stares usually follow.

Examples are the best way to get at this concept. Non-rivaled means that the consumption of the good by one person does not reduce the availability of the good for others. If I drink a case of beer, the result (apart from me talking really loud and then passing out) is that I make that case of beer unavailable for anyone else.

Non-excludable means, well, that the consumption of the good does not exclude others from consuming that good. Continuing the beer example, if I drink that case of beer, I exclude others from consuming it. This, in a way, slightly reduces the ability of others to consume that same good. I know that they could go and buy their own beer, but they are prevented from consuming the beer that I did.

That case of beer is, therefore, not a public good because it is rivaled and excludable.

Something like a parade is different. The consumption of the good (the events of the parade) by one person does not reduce the availability of the parade for other spectators. In the same way, the consumption of the parade by one person does not exclude others from consuming it.

Parades are, then, public goods. Other example of public goods are things like parks, sidewalks, fireworks displays (to an extent) and other goods that people can consume without competition or exclusion. "Public" events like sporting events, concerts and other performances are not actually public because people can be excluded by means of an entrance fee.

The provision of these goods leads to a problem...

The Free-Rider Problem

This problem could just as easily be called "the freeloader problem."

The free-rider problem arises when people enjoy the benefits of a good completely independent of whether they pay for it or not. Classic examples that are given for this are things like national defense. Whether I pay for it or not, I will be protected by the armed forces of my government. The cost of keeping me (and other free-riders) from being defended (or, in other words, consuming this particular public good) is prohibitive.

An example closer to home, for some of us, might also help define this concept. We all have that friend who is usually described as a "mooch," a "leech" or "that cheap fucker who never ponies up for anything."

Snoop Dogg once famously expressed this notion in song: "I got me some Seagram's Gin/everybody's got their cup but they ain't chipped in/this kind of shit happens all the time/you gotta get yours, fool, but I gotta get mine." Snoop intuitively understood the problem of free-riders.

So, suppose you and your friends are planning a party. You plan on splitting the price of the food, drink and other expenses. You, being the magnanimous people you surely are, extend a more-or-less open invitation to friends to come and bring whomever they like. If they are really your friends, and they value your expenditure on the event, will reciprocate in kind or in cash.

There's always That Guy (or Gal), though. They come along, eat your food, drink your booze, take up your space and time and contribute nothing (aren't these also always the people who pass out on your couch and you then have to deal with them the next day as well). The price of excluding these people is probably prohibitive (socially or otherwise) and getting them to pay is even harder.

Free-riders, then, are a real problem when it comes to public goods. In the case of a parade, they consume the resource without any intention of bearing the cost of the event.

Well, this is not completely true because they bear some cost if public resources are expended in putting on the event. They DO pay for anything that is supported with public funds (police, fire, sanitation and the like). This cost, though, is often small compared to the amount of the resources consumed.

The result of this is especially acute for a private body that produces a public good, a body like the committee that until recently organized the SSIP. The free-riders are so many and the expense is so great that the ability to produce this public good voluntarily becomes cost-prohibitive.

Conclusion and Preview

As you can see, the problems of the parade are characterized by the ideas of public goods and the related problem of free-riders. These are, naturally, not the only problems involved.

We will discuss these other issues next time and begin to offer some possible solutions to the issue based on these concepts and some good old-fashioned intuitive thinking.

We will also engage in some wild speculation (perhaps in a fourth parade-related post) about other reasons behind this event being cancelled. I must warn you, though. All of the above is based on solid foundations. These claims will have no such thing. They will involve clannish neighborhood empire buliders, Mayor Daley, thinly-veiled racism, the Chicago Police Department and the extremely cynical application of demographic data.

But that's for another time.

(NOTE: If you are interested in the above-discussed concepts, I would gladly provide a short reading list of articles and books that discuss these fascinating concepts. They are fascinating, right? Right?)

1 comment:

Xerographica said...

The trick is that we all value public goods differently. I mean, we're probably not going to buy all the same private goods so why should we all have to buy the same public goods?

The solution is to allow tax payers to vote with their taxes.