Question

Explain briefly why the private market for public goods is typically characterized by underprovision. Under what situations will we expect the private market to overcome this problem (at least partially)?

Answer 1

Answer:

Exclusivity of the goods and services

Explanation:

The private market suffers as a result of the underprovision of the public goods. When this situation takes place, there is a tendency for the private market to try to develop ways to make the goods excludable. The phenomenon results in an additional problem such as the free rider problem. This is a case where an investment has  a personal cost that is raised. The provision of public goods works when individuals value the benefits of and costs to others in making their consumption choices.