GOVERNMENT PROVIDING THE ALLOCATIVE ROLE TO THE ECONOMY

GOVERNMENT PROVIDING THE ALOCATIVE ROLE TO THE ECONOMY

BY: EDE KENECHUKWU KENNETH. EMAIL:edekenechukwuk@gmail.com

The guiding principle of the model of competitive market is the concept of “The Property Right”. Property Right is referred to as the right of ownership given to an individual over some commodities (properties) and the right to exclude others from enjoying the benefits that comes from such property. Any time a set of property right exist, it is codified and embodied in the society’s structure of laws. Whenever any individual exchange any goods or services, they are in fact exchanging property rights. The higher the exchange, the higher the transaction cost, and vise-vasa.

The ambiguity of the property right, reduce its marketability and price of such commodity and the higher the marketability of a property, the higher the price. 

Stolen commodities (goods and services), requires a set of special underground or “black market” exchange. Illegal exchanges takes place in an illegal way and some commodities are not supported by law or constrained by law, like dangerous drugs.

COMMON PROPERTY

The property which the right of ownership cannot be assigned to a single person is referred to as common property. In exemplification, we have goods like: boreholes, rivers, etc. it has the following features:

1.  The probability of indivisibility.

2.  Marginal Utility is equal to zero (MU=P=0), i.e. it has no cost of usage.

3.  Property right cannot be sold or transferred to anyone both in the group and outside the group.

4.  It has large consumer that makes it to deteriorate quickly.

For instance, if a river serves as common property to a certain town (Ozalla), the government should intervene in order to safeguard the interest of all. The reason is that, there is probability of over usage, destruction or vandalization or even colonization of the property by the “Haves” while the “Have nots” will be cheated against. This goes in line with the question “David Hume” asked in the 18^th century – what kind of economic behavior would this result from? And he went further to call the situation “the tragedy of the common”.

 The game is between the haves and haves nots, the Haves who are nourished with almost every commodity they would want to have, would over use, and may even trespass against the rules of that particular commodity, to the detriment of the Have nots.

Going by the example above, if fishing in Ozalla river is the only source of income to the inhabitants/dwellers of Ozalla, and there is poor management of the river and violation of the regulation guiding the usage of the river and fishing, it will result to conflict, and dun on the consumers, there by resulting to the tragedy of the common.

Here, government serves as the regulator, through playing her locative role, order to stop unnecessary competitions and the poor usage of Ozalla River, and regulate the self interests of individuals.

In another dimension, there abound the activities of the “free riders” – “a Free Rider is an individual who misrepresents his presences on the expectation that he can enjoy the benefits of a collective property without paying for them”. From this point of view, “it is rational to be a free rider”.

A freerider bases his assumption that no member of the group would play the same game he play. This is a prisoner’s dilemma game, which means that both freeriders and the other members of the group are not aware of each person’s strategy.

 The freerider is unaware if he is the only one who plays the free riding. Thus, the government comes in to perform its a locative role, by allocating the resources both between individuals and across time, there by maximizing the common interest of all the members of the group.

An unregulated market fails to produce efficiently (pareto-inefficiency), the market solution would improve if everyone cooperates, but there is no co-operation in the presence of strong incentives (Free-Riding) which is very costly. Government institution is the solution to the non-cooperation of members of the group, through its a locative role; it would bring private incentives to cooperate.

Government is coercive and necessary for it to be so and it is coercive in the benevolence sense, that the allocation of resources which the government produces is pareto improvement upon the uncoordinated outcome.

Government also requires the institution of compulsory taxation because the Free-Riders do not have any incentive to pay for the benefit of non-cooperative outcome, whether government is benevolent or not.