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Introduction to Positive Externalities and Public Goods

Mathematics and Statistics
View from Voyager I
Launched by NASA on September 5, 1977, Voyager 1’s primary mission was to provide detailed images of Jupiter, Saturn, and their moons. It took this photograph of Jupiter on its journey. In August of 2012, Voyager I entered intersteller space—the first human-made object to do so—and it is expected to send data and images back to earth until 2025. Such a technological feat has a lot to do with economic principles. (Credit: modification of work by NASA/JPL)

Can you imagine a world in which you did not own a cellular phone or use Wikipedia? New technology changes how people live and work and what they buy. Technology includes the invention of new products, new ways of producing goods and services, and even new ways of managing a company more efficiently. Research and development of technology is the difference between horses and automobiles, between candles and electric lights, between fetching water in buckets and indoor plumbing, and between infection and good health from antibiotics.

In December 2009, ABC News compiled a list of some of the technological breakthroughs that have revolutionized consumer products in the past 10 years:

  • GPS tracking devices, originally developed by the defense department and available to consumers in 2000, give users up-to-date information on location and time through satellite technology.
  • In 2000, Toyota introduced the Prius hybrid car, which greatly improved fuel efficiency.
  • Also in 2000, AT&T offered its customers the ability to text on a mobile phone.
  • In 2001, Wikipedia launched a user-generated encyclopedia on the Web.
  • Even though Napster died in 2001, the company launched music downloading and file sharing, which revolutionized how consumers get their music and videos.
  • Friendster kicked off the social networking business in 2003, and Twitter and Facebook followed.
  • In 2003, the Human Genome project was completed. It helps to fight disease and launch new pharmaceutical innovations.
  • Also in 2003, the search engine became a way of life for obtaining information quickly. The search engine companies also became innovators in the digital software that dominates mobile devices.
  • In 2006, Nintendo launched Wii and changed the way video games are played. Players can now be drawn into the action and use their bodies to respond rather than a handheld device.
  • Apple introduced the iPhone in 2007 and launched an entire smartphone industry.

With all new technologies, however, there are new challenges. This chapter deals with some of these issues: Will private companies be willing to invest in new technology? In what ways does new technology have positive externalities? What motivates inventors? Does government have a role to play in encouraging research and technology? Are there certain types of goods that markets fail to provide efficiently, and that only government can produce? What happens when consumption or production of a product creates positive externalities? Why is it unsurprising when a common resource, like marine fisheries, is overused?

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