Does the allocation of the steel scrap to the production of domestic appliances
rather than the high-speed railways produce a better deal for society? A requires the
steel scrap as an input to produce private goods, while B requires the steel scrap for
producing an impure public good, which itself is also an input for other various
productive activities (see also Chap. 2).
This example (as the previous one) tries to show the possible social value or
surplus involved in the allocation of rival goods. Although it might be tempting to
look towards selling to B because of its potential social value, this should be
circumvented. Because, as for the previous example
(1) the steel is rivalrous and must be exclusively allocated, and
(2) the market mechanism is the most efficient method for this transaction because it
generates more reliable information (A’s $400 > B’s $350) about valuation, on
which it depends.
(3) the market mechanism, being efficient, effectively informs other steel producers
about the demand for steel scrap.
If the output under consideration is socially valuable and desirable (over and
above and beyond the value revealed in output markets), the standard solution is for
government to subsidise the output producers here, the high-speed transit systems;
this would enable these producers to bid effectively for the inputs they need.
If B obtains stimulus funds (subsidy) from the government, this may perhaps
encourage B to review his bid. Then B’s private demand for steel scrap may better
reproduce societal demand – demand resulting from demand for high-speed transit
systems.
17.3.3 Nonrivalrous Consumption Goods and Nonrivalrous
Capital Goods
Nonrivalrous consumption goods follow the same economic considerations
explained in the previous section. Due to nonrivalry, the three principles explained
above do not hold and there is a trade-off between static and dynamic efficiencies.
Multiple users may use the same nonrival capital goods (e.g. roads, rail) as an
input for producing other goods (outputs). Generally, demand for nonrival inputs
will vary according to the variety of outputs. Essentially, if the range of outputs is
wide, the potential for increasing returns to sharing is greater.
If instead of rivalrous use of steel scrap, the resource to be allotted is a technique
for processing steel scrap, while A and B value the technique, at say $450 and $400,
respectively. Now, it is not essential to pick between domestic appliances or railway
systems because both A and B could use the same technique. The technique
(resource) could be allocated exclusively to A, exclusively to B, or non exclusively
to A and B.
17.3 Capital Goods
479
rather than the high-speed railways produce a better deal for society? A requires the
steel scrap as an input to produce private goods, while B requires the steel scrap for
producing an impure public good, which itself is also an input for other various
productive activities (see also Chap. 2).
This example (as the previous one) tries to show the possible social value or
surplus involved in the allocation of rival goods. Although it might be tempting to
look towards selling to B because of its potential social value, this should be
circumvented. Because, as for the previous example
(1) the steel is rivalrous and must be exclusively allocated, and
(2) the market mechanism is the most efficient method for this transaction because it
generates more reliable information (A’s $400 > B’s $350) about valuation, on
which it depends.
(3) the market mechanism, being efficient, effectively informs other steel producers
about the demand for steel scrap.
If the output under consideration is socially valuable and desirable (over and
above and beyond the value revealed in output markets), the standard solution is for
government to subsidise the output producers here, the high-speed transit systems;
this would enable these producers to bid effectively for the inputs they need.
If B obtains stimulus funds (subsidy) from the government, this may perhaps
encourage B to review his bid. Then B’s private demand for steel scrap may better
reproduce societal demand – demand resulting from demand for high-speed transit
systems.
17.3.3 Nonrivalrous Consumption Goods and Nonrivalrous
Capital Goods
Nonrivalrous consumption goods follow the same economic considerations
explained in the previous section. Due to nonrivalry, the three principles explained
above do not hold and there is a trade-off between static and dynamic efficiencies.
Multiple users may use the same nonrival capital goods (e.g. roads, rail) as an
input for producing other goods (outputs). Generally, demand for nonrival inputs
will vary according to the variety of outputs. Essentially, if the range of outputs is
wide, the potential for increasing returns to sharing is greater.
If instead of rivalrous use of steel scrap, the resource to be allotted is a technique
for processing steel scrap, while A and B value the technique, at say $450 and $400,
respectively. Now, it is not essential to pick between domestic appliances or railway
systems because both A and B could use the same technique. The technique
(resource) could be allocated exclusively to A, exclusively to B, or non exclusively
to A and B.
17.3 Capital Goods
479