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Public good

Sunday, February 25, 2018

Few items in society can be consumed by all persons at the same time, or no one at all.

This is the essence of a public good.

Properly defined, a public good is an item consumed by society as a whole and not necessarily by an individual consumer.

Public goods have three characteristics.

They are: non-rival—one person consuming them does not stop another person consuming them; non-excludable—if one person can consume them, it is impossible to stop another person consuming them; non-rejectable—people cannot choose not to consume them even if they want to.

(The opposite of a public good is a private good, which does not possess these properties.)

The combination of non-rivalry and non-excludability means that it can be hard to get people to pay to consume them, so they might not be provided at all if left to market forces.

Public goods therefore, provide a very important example of market failure, in which market-like behavior of individual gain-seeking does not produce efficient results.

As a result, public goods are financed by tax revenues.

National defense, sewer systems, public parks and other basic societal goods can all be considered public goods.

A corollary of public goods are “quasi-public goods” which are goods and services that have characteristics of being non-rivalrous and non-excludable but are not “pure” public goods.

Roads are a good example of a quasi-public good.

All infrastructure is built for the benefit of the public, but as more of the public uses the infrastructure, it causes traffic and congestion, lowering the value of the good.

While public goods are important for a functioning society, there is an issue that arises when these goods are provided, called the “free-rider problem”.

This problem says a rational person will not contribute to the provision of a public good because he does not need to contribute to benefit.

For example, if a person does not pay his taxes, he still benefits from the government’s provision of national defense by free riding on the tax payments of his fellow citizens.


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