EEP 101/Econ 125 Clubs and Congestion: Lecture 10

1 / 8

# EEP 101/Econ 125 Clubs and Congestion: Lecture 10 - PowerPoint PPT Presentation

EEP 101/Econ 125 Clubs and Congestion: Lecture 10. David Zilberman UC Berkeley. Clubs and congestion. Clubs- organizations that form to provide excludable goods with Non rivalry Congestion- utility declines with number of users

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

## PowerPoint Slideshow about ' EEP 101/Econ 125 Clubs and Congestion: Lecture 10' - marek

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

### EEP 101/Econ 125 Clubs and Congestion: Lecture 10

David Zilberman

UC Berkeley

Clubs and congestion
• Clubs- organizations that form to provide excludable goods with
• Non rivalry
• Congestion- utility declines with number of users
• B(N,X) Benefits depend on amenity size X and number of users N.
• d B(N,X) /dN<0
• d B(N,X) /dX>0
• c(X) Cost increases with X
• If costs are shared a member choice is
• MAX B(N,X)-c(X)/N which is equivalent to
• Max N* B(N,X)-c(X)
Clubs:Optimal size
• Socail Optimality problem
• Optimal decision rules

N*MBX=MCX

Marginal benefits of quantity

To N members

=Marginal cost

N*MB=Benefits of the marginal member=Extra congestion cost it inflicts= -N*MBN-

Club a numerical example I
• Benefit for an individual aX-bN
• Cost cX+dX2
• Optimal size Max N(aX-bN)- cX-dX2
• FOC(X) aN-c-2dX=0 aN=2dX+c
• Hence (1) aN-2dX=c alternatively
• X=Na-c/2d This result is a public good result when N is fixed. But N is not it,it is determined according to
Club a numerical example II
• FOC(N) aX-bN-2bN=0
• hence X/N=3b/a
• High b( congestion cost) increases optimal X/N ratio
• High a ( benefit of X) reduces optimal X/N ratio
• X=N3b/a
• Positive relation between N and X
• Insert to 1 (aN-2dX=c)
• (a-6db/a)N=c
• N=ca/ (a-6db)
• Higher cost of the good leads to a larger club
• X=3Nbc/ (a-6db)
Freedom to Choose
• Clubs are established to accommodate people with different preferences.
• Clubs with members with a high degree of preference for goods and high aversion to congestion, will charge a high membership fee and be exclusive.
• Municipalities are also clubs.
• Different communities have different combinations of services and taxes.
People choose with their feet.
• People will relocate to locations that provide them with the optimal combination of environmental amenities, employment, congestion, and taxes.
• Some people who prefer a high degree of services with high taxes, will join the appropriate community.
• Therefore, uniform environmental policies have a disadvantage and when possible, communities will be allowed to establish their own standards.
• But some environmental choices have implications that spill over nationally and globally.
• Others impact future generations.
Environmentalism & Federalism
• The theory of public goods and externality are useful to determine what type of policies should be determined by global, federal, and municipal governments.
• The federal government sometimes aims to establish minimum standards that apply to all populations and take into account a future generation.
• Groups that have stronger preference than the average, may establish clubs to pursue their objectives.
• The legal system is crucial in dividing responsibilities between various levels of government