First, thanks for your response, I know how busy you are with all kinds of stuff, so I really appreciate it.

>Huh? This does not make sense. Lambos are a private good (and a mild public bad for congestion and Veblen reasons, but let’s skip past that…), police are a public good. The reason why public goods are underproduced is that anyone paying for a public good, by increasing the level of production of that public good, is benefiting N people, but is only themselves getting 1/N of that benefit. Ergo self-interested individuals will only contribute to public goods whose benefit/cost ratio is greater than N:1. It’s a tragedy of the commons scenario.

I think you misunderstand my main point. In more general terms, it is that you can say both about what you call public goods and Lambos that the cases have a similar logical structure:

If a feature of the world X were different, A would pay P for good G.

Now, for the so-called public goods that feature is the coordination difficulty, while for Lambos, it is the relative scarcity of the inputs that are used in producing them and are also usable in high-value alternative projects but that does not matter all that much.

Put differently, consider three choices a person may entertain:

  1. She has $15 and is choosing between a meal at a cafe and a long-distance bus ticket both of which are available at those prices.
  2. She has $9,000 and will spend it on a new Ford but would rather spend them on a new Lambo if only the latter were available at this price. Which it cannot be without an external force (e.g. government) reallocating resources.
  3. She has $100 and will spend it on a new jacket but if a minimum number of other people in her community were prepared to contribute $100, too, she would rather spend it on more policing. Which will not happen without an external force (e.g. government) forcing people to contribute.

The first choice and others like it are what economics is really about, whereas the two latter are armchair theorizing and are completely irrelevant for economics. In situations like the first case, you can talk about underproduction, for instance, if an extra-market force like government artificially caps the price of long-distance bus rides at $10 and not enough bus rides are available. This is the only genuine economic sense in which you can use the term “underproduction”.

>Huh? Catastrophic risks are a public bad and can be modeled as a public bad similar to CO2 levels.

>How is people’s desire to have a secure network not an economic factor?

The responses to these should be clear from the above I hope.

Written by

PhD, economics (2018) from Aix-Marseille University, independent blockchain adoption consultant based in Aix-en-Provence, France, Email: daniilgor2004@gmail.com

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