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    Scope of Social Accounting

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    mahanth gowda
    This document discusses public goods and externalities, and how markets often solve these problems in various ways without government intervention. It provides examples of how private businesses have provided goods and services traditionally considered public goods, such as cable TV, toll roads, and shopping malls that provide security and lighting. Well-defined property rights can also address environmental public goods problems by giving individuals incentives to protect and sustainably use resources. Contractual agreements sometimes allow industries to address research spillovers. Overall, the document argues that markets are often more effective than assumed at solving public goods and externalities problems.

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    Scope of Social Accounting

    Uploaded by

    mahanth gowda
    2K views4 pages
    This document discusses public goods and externalities, and how markets often solve these problems in various ways without government intervention. It provides examples of how private businesses have provided goods and services traditionally considered public goods, such as cable TV, toll roads, and shopping malls that provide security and lighting. Well-defined property rights can also address environmental public goods problems by giving individuals incentives to protect and sustainably use resources. Contractual agreements sometimes allow industries to address research spillovers. Overall, the document argues that markets are often more effective than assumed at solving public goods and externalities problems.

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    This document discusses public goods and externalities, and how markets often solve these problems in various ways without government intervention. It provides examples of how private businesses have provided goods and services traditionally considered public goods, such as cable TV, toll roads, and shopping malls that provide security and lighting. Well-defined property rights can also address environmental public goods problems by giving individuals incentives to protect and sustainably use resources. Contractual agreements sometimes allow industries to address research spillovers. Overall, the document argues that markets are often more effective than assumed at solving public goods and externalities problems.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    2K views4 pages

    Scope of Social Accounting

    Uploaded by

    mahanth gowda
    This document discusses public goods and externalities, and how markets often solve these problems in various ways without government intervention. It provides examples of how private businesses have provided goods and services traditionally considered public goods, such as cable TV, toll roads, and shopping malls that provide security and lighting. Well-defined property rights can also address environmental public goods problems by giving individuals incentives to protect and sustainably use resources. Contractual agreements sometimes allow industries to address research spillovers. Overall, the document argues that markets are often more effective than assumed at solving public goods and externalities problems.

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    Scope of Social Accounting

    (a) Net Income Contribution:


    Growing emphasis on social objectives does not reduce importance of profit motive. Brummet was of
    the view; no firm can survive long without earning profits. A firm continuously running into losses for
    longer periods may become sick and become a burden on society. On the other hand any firm cannot
    think about accomplishment of other social goals without having adequate surplus funds, rather
    inadequacy of funds create hurdles in achieving other social goals.

    (b) Human Resource Contribution:


    This contribution reflects impact of enterprises policies on human resources. General awareness
    among employees and working class has increased importance of human resources. Increased
    emphasis on human resources has led to the recognition of Human resources as human assets and the
    need of accounting for human resources. Union management relations, recruitment of minorities,
    employment to handicapped, employee welfare programmes, off the Job training, on the job training,
    promotion policies Job security, Job satisfaction, merit rating, industrial relations, employee
    development programmes are the activities which are included in human resource contribution.

    (c) Public Contribution:


    This contribution reflects enterprise’s policies’ impact on individuals which are outsiders for the
    organisation. These activities include social clubs, schools, charitable organisation, health centres,
    libraries, maintenance of chowks, lawns, employment opportunities for minorities and handicapped.
    Creation of Jobs and employment opportunities are also contribution of an enterprise.

    (d) Environmental Contribution:


    This contribution includes activities directed towards reducing deterioration of water, air and soil.
    Installation of air purifiers, disposal of wastes, reduction in noise pollution are also included in this
    contribution.

    (e) Product or Service Contribution:


    This area includes product safety, Product quality, packaging, product promotion, advertisements,
    service facilities, product durability, customer satisfaction, completeness and clarity of labelling.
    External Effects & Public Goods

    Most economic arguments for government intervention are based on the idea that the
    marketplace cannot provide public goods or handle externalities. Public health and welfare
    programs, education, roads, research and development, national and domestic security, and a
    clean environment all have been labeled public goods.

    Public goods have two distinct aspects—"nonexcludability" and "nonrivalrous consumption."


    Nonexcludability means that nonpayers cannot be excluded from the benefits of the good or
    service. If an entrepreneur stages a fireworks show, for example, people can watch the show
    from their windows or backyards. Because the entrepreneur cannot charge a fee for consumption,
    the fireworks show may go unproduced, even if demand for the show is strong.

    The fireworks example illustrates the "free-rider" problem. Even if the fireworks show is worth
    ten dollars to each person, no one will pay ten dollars to the entrepreneur. Each person will seek
    to "free-ride" by allowing others to pay for the show, and then watch for free from his or her
    backyard. If the free-rider problem cannot be solved, valuable goods and services, ones that
    people want and otherwise would be willing to pay for, will remain unproduced.

    The second aspect of public goods is what economists call nonrivalrous consumption. Assume the
    entrepreneur manages to exclude noncontributors from watching the show (perhaps one can see
    the show only from a private field). A price will be charged for entrance to the field, and people
    who are unwilling to pay this price will be excluded. If the field is large enough, however,
    exclusion is inefficient because even nonpayers could watch the show without increasing the
    show's cost or diminishing anyone else's enjoyment. That is nonrivalrous competition to watch
    the show.

    Externalities occur when one person's actions affect another person's well-being and the relevant
    costs and benefits are not reflected in market prices. A positive externality arises when my
    neighbors benefit from my cleaning up my yard. If I cannot charge them for these benefits, I will
    not clean the yard as often as they would like. (Note that the free-rider problem and positive
    externalities are two sides of the same coin.) A negative externality arises when one person's
    actions harm another. When polluting, factory owners may not consider the costs that pollution
    imposes on others. Policy debates usually focus on free-rider and externalities problems, which
    are considered more serious problems than nonrivalrous consumption.

    While most people are unaware of it, markets often solve public goods and externalities problems
    in a variety of ways. Businesses frequently solve free-rider problems by developing means of
    excluding nonpayers from enjoying the benefits of a good or service. Cable television services, for
    instance, scramble their transmissions so that nonsubscribers cannot receive broadcasts. Both
    throughout history and today, private roads have financed themselves by charging tolls to road
    users. Other supposed public goods, such as protection and fire services, are frequently sold
    through the private sector on a fee basis.

    Public goods can also be provided by being tied to purchases of private goods. Shopping malls,
    for instance, provide shoppers with a variety of services that are traditionally considered public
    goods: lighting, protection services, benches, and rest-rooms, for example. Charging directly for
    each of these services would be impractical. Therefore, the shopping mall finances the services
    through receipts from the sale of private goods in the mall. The public and private goods are
    "tied" together. Private condominiums and retirement communities also are examples of market
    institutions that tie public goods to private services. Monthly membership dues are used to
    provide a variety of public services.

    Lighthouses are one of the most famous examples that economists give of public goods that
    cannot be privately provided. Economists have argued that if private lighthouse owners
    attempted to charge ship-owners for lighthouse services, a free-rider problem would result. Yet
    lighthouses off the coast of nineteenth-century England were privately owned. Lighthouse owners
    realized that they could not charge shipowners for their services. So they didn't try to. Instead,
    they sold their service to the owners and merchants of the nearby port. Port merchants who did
    not pay the lighthouse owners to turn on the lights had trouble attracting ships to their port. As it
    turns out, one of the economics instructors' most commonly used examples of a public good that
    cannot be privately provided is not a good example at all.

    Other public goods problems can be solved by defining individual property rights in the
    appropriate economic resource. Cleaning up a polluted lake, for instance, involves a free-rider
    problem if no one owns the lake. The benefits of a clean lake are enjoyed by many people, and
    no one can be charged for these benefits. Once there is an owner, however, that person can
    charge higher prices to fishermen, boaters, recreational users, and others who benefit from the
    lake. Privately owned bodies of water are common in the British Isles, where, not surprisingly,
    lake owners maintain quality.

    Well-defined property rights can solve public goods problems in other environmental areas, such
    as land use and species preservation. The buffalo neared extinction and the cow did not because
    cows could be privately owned and husbanded for profit. Today, private property rights in
    elephants, whales, and other species could solve the tragedy of their near extinction. In Africa,
    for instance, elephant populations are growing in Zimbabwe, Malawi, Namibia, and Botswana, all
    of which allow commercial harvesting of elephants. Since 1979 Zimbabwe's elephant population
    rose from 30,000 to almost 70,000 today, and Botswana's went from 20,000 to 68,000. On the
    other hand, in countries that ban elephant hunting—Kenya, Tanzania, and Uganda, for example—
    there is little incentive to breed elephants but great incentive to poach them. In those countries
    elephants are disappearing. The result is that Kenya has only 16,000 elephants today versus
    140,000 when its government banned hunting. Since 1970, Tanzania's elephant herd has shrunk
    from 250,000 to 61,000; Uganda's from 20,000 to only 1,600.

    Property rights are a less effective solution for environmental problems involving the air,
    however, because rights to the air cannot be defined and enforced easily. It is hard to imagine,
    for instance, how market mechanisms alone could prevent depletion of the earth's ozone layer. In
    such cases economists recognize the likely necessity of a regulatory or governmental solution.

    Contractual arrangements can sometimes be used to overcome other public goods and
    externalities problems. If the research and development activities of one firm benefit other firms
    in the same industry, these firms may pool their resources and agree to a joint project (antitrust
    regulations permitting). Each firm will pay part of the cost, and the contributing firms will share
    the benefits. In this context economists say that the externalities are "internalized."

    Contractual arrangements sometimes fail to solve public goods and externalities problems. The
    costs of bargaining and striking an agreement may be very high. Some parties to the agreement
    may seek to hold out for a better deal, and the agreement may collapse. In other cases it is
    simply too costly to contact and deal with all the potential beneficiaries of an agreement. A
    factory, for instance, might find it impossible to negotiate directly with each affected citizen to
    decrease pollution.

    The imperfections of market solutions to public goods problems must be weighed against the
    imperfections of government solutions. Governments rely on bureaucracy and have weak
    incentives to serve consumers. Therefore, they produce inefficiently. Furthermore, politicians may
    supply public "goods" in a manner to serve their own interests, rather than the interests of the
    public; examples of wasteful government spending and pork-barrel projects are legion.
    Government often creates a problem of "forced riders" by compelling persons to support projects
    they do not desire. Private solutions to public goods problems, when possible, are usually more
    efficient than governmental solutions.

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