Here’s the point. If the public good is avoidable, you can increase the user tax (by bundling ads) and trust that those who don’t value the public good very much will stop using it. Given the level of the tax it would be inefficient for them to use it. Knowing that this inefficiency can be avoided you have more flexibility to raise the tax, effectively price discriminating high-value users.YouTube videos are a nice example of avoidable public goods. You don't have to watch them, but you can and I'll have a hard time preventing you from pirating the video if I try to charge you for access. Consistent with Ely's theory, YouTube videos are also largely ad-sponsored.
Monday, March 7, 2011
Avoidability and Public Goods Provision
Here's an interesting post from Jeff Ely at Cheap Talk about the role of avoidability in the provision of public goods.