Quote:
Originally Posted by Sholar
What good is overproduced? How do you know it is overproduced? (Be specific with your example.)
Now imagine that instead of "pride", they got a candy bar.
What good is overproduced? How do you know it is overproduced?
If anything about your answer changes, you are making a mistake.
OK let me say that I am assuming that the public good is produced in direct proportion to the revenue the assurance firm generates. I am also assuming that there exists a specific amount of the public good that is the optimal amount. It is not measurable what that amount is but some amount is socially optimal. Since the good is produced in direct proportion to the revenue of the assurance firm, there is only one value of revenue that will produce the optimal amount of good.
So imagine two scenarios. In both scenarios the assurance firm must get everyone who would use the public good to agree to contribute. In the first the bids are secret, and in the second the bids are published. I think it is fairly uncontroversial to say that the revenues would be expected to be higher in the second scenario, thus more of the public good would be produced. This is because in the second scenario, two things are being sold: pride (a private good) and the public good itself.
Now let's say that a utilitometer is introduced to analyze the situation and it is found that in the secret bid scenario the public good is underproduced. Hardly surprising. In the public bid situation it is found that the public good is overproduced. This may or may not be a realistic situation, depending on the value people would put on the good "pride."
So you say might say, sure, in the public bid situation the public good was overproduced, but it is actually an efficient tranaction because people got X dollars worth of pride in surplus of the value of the public good.
I think this is faulty reasoning however. Let's take citizen Tom as an example. Let's say that the utilitometer shows that Tom values the public good at 100 dollars. In the private bid situation he bids 50 dollars. In the public bid situation he bids 150 dollars. We can go ahead and say that Tom is clairvoyant and accurately knows how much he values the public good. In the private bid situation because Tom underbids, the public good is underproduced by 50 dollars. While Tom gets to keep his 50 dollars, we know he would value the public good more. In the overbidding case, Tom pays 150 dollars and the public good is overproduced. But Tom gets 50 dollars worth of pride. But he pays for that pride in 50 dollars worth of excessive public good.
To me the overbidding and underbidding are equivalent. Tell me why I'm wrong.