The Privatization of Roads and Highways - Ludwig von Mises Institute

126 The Privatization of Roads and Highways
departments located on the various floors, “cannot be denied to
anyone who travels” in the store. Is there a case, by analogy, for
making government responsible for informing people where
dresses, sportswear, and household utensils can be found?
Let us turn now to the doctrine of revealed preference. It, too,
has serious flaws. It is our contention that, government interferences
into the market apart, all external benefits, spill-overs, etc.,
will tend to cease to exist, provided they are significant enough
to make it profitable for private enterprise to internalize them.
For example, if the costs of building a tall fence around the drivein
theater are lower than the (discounted) value of the additional
receipts the owner expects to receive as a result of its construction,
then he will build it. If the costs exceed the benefits derivable,
he will not build the fence. But if the benefits to be received
are so low, then the externalities and spill-overs are not likely to
discourage the businessman from providing the service in the
first place.
It has been objected that the government can provide the
internalization for free and may thus be more efficient than the
market (profit-and-loss incentives notwithstanding). Let us construct
an example. Suppose that in a society of one hundred people
each would benefit from the provision of a “public good” to
the extent of $10. And let us also suppose that the cost of providing
the good, in terms of alternatives foregone, is only $50. Thus,
with a total benefit of $1,000, less a cost of $50, there would be a
$950 profit in this enterprise. The only problem is that, while each
of the one-hundred people would indubitably benefit to the tune
of $10, we must also consider the cost—let us assume,
$1,000,000—of erecting a fence sufficient to exclude these people
from enjoying the benefits for free. Therefore, it cannot be a paying
proposition for free enterprise. But what will government do?
Rather than wastefully spend the $1,000,000 on the fence, the
state simply recoups the $50 cost by taxing $.50 from each of the
one hundred people, and then provides the service to all comers
“for free.”