ACCT 210 Lecture Notes - Lecture 14: Free Rider Problem, Aggregation Problem, Unanimous Consent
Document Summary
Direct democracy: whereby voters directly cast ballots in favor of or in opposition of particular public projects. Representative democracy: whereby voters elect representatives, who in turn make decisions on public projects. Lindahl pricing: an approach to financing public goods in which individuals honestly reveal their willingness to pay and the government charges them that amount to finance public good. Marginal willingness to pay: the amount the individuals are willing to pay for the next unit of good. Benefit taxation: taxation in which individuals are taxed for a public good according to the benefit they receive from that good. Preference revelation problem: individuals have an incentive to lie about their willingness to pay free rider problem. Preference knowledge problem: it is hard for individuals to value goods that they don"t usually shop. Preference aggregation problem: it is hard for the government to track everyone"s willingness to pay ad to aggregate it.