Public Goods
Public goods are goods or services that are non-excludable and non-rivalrous in consumption. Non-excludability means that it is not possible to prevent people from consuming the good, and non-rivalry means that one person's consumption does not reduce the amount available to others. These characteristics cause markets to underprovide public goods, which is a classic form of market failure.[1]
Characteristics
| Property | Meaning |
|---|---|
| Non-excludable | Individuals cannot be prevented from using the good. |
| Non-rivalrous | Consumption by one person does not reduce availability to others. |
A pure public good possesses both properties. Goods that possess only one are sometimes called club goods (excludable but non-rival) or common resources (rival but non-excludable).[1]
Examples
Classic examples of public goods include:
- National defence
- Public radio and television broadcasts
- Basic scientific research
- Street lighting
- Disease prevention and public health measures
The free-rider problem
Because public goods are non-excludable, individuals have an incentive to benefit from the good without paying for it—a situation known as the free-rider problem. If everyone attempts to free-ride, the good may not be provided at all, even though its total benefit exceeds its cost. This provides a fundamental justification for government provision or financing of public goods, typically through taxation.[1]
Provision
Public goods may be provided directly by government, financed publicly but produced privately, or provided through voluntary contributions such as those studied in game theory. The optimal level of provision equates the marginal social benefit of the good to its marginal social cost, a result formalised in the Samuelson condition.[1]