14. Public Goods

Note: This post is the fourteenth in a series. Click here for the full listing of the series.

A concept that will be useful for the next book review is the economic notion of 'public goods'

I'll let wikipedia do the explaining:

'In economics, a public good is a good that is non-rivaled and non-excludable. This means, respectively, that consumption of the good by one individual does not reduce availability of the good for consumption by others; and that no one can be effectively excluded from using the good. ...

For example, if one individual drinks a milkshake, there is no milkshake left for anyone else, and it is possible to exclude others from consuming the milkshake; it is a rivaled and excludable private good. Conversely, breathing air neither significantly reduces the amount of air available to others, nor can people be effectively excluded from using the air. This makes it a public good'

So you have four possibilities:

1) A good can be 'rival' (meaning if I take some, there's less for you) and 'excludable' (the provider can control who the recipients are) - private goods

Example: The milkshake, most basic goods such as TV's, toasters, etc.

2) A good can be 'rival' (if I take some there's less for you) and 'non-excludable' (provider can't control who the recipients are)

Example: Natural resources that are held in common, such as fish in the ocean.

3) A good can be 'non-rival' (taking some doesn't diminish what is available) and 'excludable' (provider can control who the recipients are)

Example: Information that can be limited to certain recipients, e.g. Cable television

4) A good can be 'non-rival' (taking some doesn't diminish what is available) and 'non-excludable' (provider can't control who the recipients are) - these are public goods

Example: Broadcast television, information goods that can't be limited to certain recipients (e.g. songs in the internet era)

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Note that non-excludable goods, especially those with a high cost of provision, are less likely to be provided by a private party due to the inability of preventing people who won't contribute to the cost of provision from receiving the benefits. i.e. the presence of free-riders.

This is why non-excludable goods tend to be provided by government (and are known as public goods, where they are non-rival), because only government has the power to compel all people, including wouldbe free riders to support the provision of beneficial goods that would otherwise go unproduced.