Tuesday, October 2, 2007

Public vs private (3)

"Third, many social sectors exhibit strong spillovers (or externalities) in their effects. I want you to sleep under an antimalarial bed net so that a mosquito does not bite you and then transmit the disease to me!
For a similar reason, I want you to be well educated so that you do not easily fall under the sway of a demagogue who would be harmful for me as well as for you. When such spillovers exist, private markets tend to undersupply the goods and services in question. For just this reason, Adam Smith called for the public provision of education: «An instructed and intelligent people ... are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition...» Smith argued, therefore, that the whole society is at risk when any segment of society is poorly educated. Natural capital is another area where externalities loom large. Private actions - pollution, logging, overfishing, and the like - can lead to species extinction, deforestation, or other kinds of environmental degradation with serious adverse consequence for the whole society, or even the whole world. Governments therefore have a crucial role to play in conserving natural capital."

No comments: