A district has repeated flooding after heavy rain. Engineers propose a flood barrier that would protect homes, shops and a railway line, including propertie...
Question 1 Report
A district has repeated flooding after heavy rain. Engineers propose a flood barrier that would protect homes, shops and a railway line, including properties whose owners might refuse to contribute to its cost.
(a) State why flood protection can be non-excludable. [1]
(b) Explain why private provision of the barrier may be insufficient. [2]
(c) Use government spending to show one way the barrier could be financed. [1]
Answer Details
(a) Flood protection is non-excludable because it is difficult or impossible to prevent non-payers in the protected area from receiving the benefit [1]. A barrier protecting one property will often protect nearby properties too.
(b) Property owners may wait for others to pay while still expecting protection [1]. This free riding makes it difficult for a private provider to collect enough revenue, so private provision may be below the socially efficient quantity [1].
(c) Government could finance the barrier through general taxation [1]. Local taxes or a compulsory levy are also acceptable because compulsory payment prevents free riding.
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