Question

In the provision of certain public goods, sometimes there are user fees associated with the consumption of the good or service. For example, a highway, which is typically open to all, may have a toll booth requiring users to pay a certain fee to travel on that road. A state park may require a nominal fee of $10 per day for you to visit. What is the rationale for these types of user fees? Explain your economic reasoning for why (or why not) these types of user fees make sound public policy.

Answer 1

Such types of user fees make sound public policy because of two reasons:

1) The first reason is to maintain the public good. Even after providing the public good, it requires constant maintenance. For example, if a highway which is provided to all is not maintained, it can lead to an increased number of accidents. Hence, for a highway which requires high maintenance, it is beneficial for the state to collect fees or tolls in order to finance the maintenance of the highway.

2) Another reason is to solve the problem of free-rider: The free rider problem is the problemm in which the person who does not pay taxes free rides on the person who pays taxes to use the public good. When a toll is charged, this problem is partially solved as everyone who uses the public good would have to pay a sum. Although this does not eliminate the problem, it partially soves the problem.