Which of the following is a disadvantage of government provision of a public good?

• A. It guarantees that only those who pay taxes benefit from the public good.
• B. It always results in underproduction of the public good.
• C. It eliminates the free-rider problem entirely.
• D. It may lead to inefficient allocation due to lack of information about individual preferences.

Answer: (D)

Verified step by step guidance

1. Understand the nature of public goods: they are non-excludable and non-rivalrous, meaning individuals cannot be excluded from consumption and one person's use does not reduce availability to others.
2. Recognize that government provision aims to solve the free-rider problem, where individuals might benefit without paying, by funding the good through taxation.
3. Consider the potential disadvantage: the government may not have perfect information about individual preferences, which can lead to inefficient allocation of resources because the quantity or quality of the public good provided may not match what people actually want.
4. Analyze why other options are incorrect: government provision does not guarantee only taxpayers benefit (since public goods are non-excludable), it does not always result in underproduction (sometimes it can lead to overproduction), and it does not eliminate the free-rider problem entirely but mitigates it through taxation.
5. Conclude that the key disadvantage is the inefficiency caused by imperfect information about preferences, which can cause the government to provide too much or too little of the public good.