Public Sector Provision of Public Goods
Public Sector Provision
Because of private under investment in public goods, there is potentially room for government involvement. A good example of this is government provision of education. In many ways, an educated population is a public good because of the positive externalities educated people "spill-over". Educated people typically have higher incomes that result in higher property tax revenues, "educated" communities typically have lower crime levels and more voter participation.
Even with these obvious advantages in supporting education, the benefits are non-excludable and non-rival so we expect underinvestment in a private market. Without government provision of grade school education, we may expect very low attendance rates. The reason for this is many parents will have an incentive to spend the money they have from lower property taxes on their own consumption, not on their kids'. Further, it is unlikely that a child could take out a loan for his or her own education. This is just one argument for government provision of public goods. Air quality is also a public good that is under provided in a private market. There are a number of potential government responses to poor air quality