What are Public Goods

A public good is a good whereby no individual can be excluded from benefiting from it. In
other words, everyone can benefit from its use. This could come in the form of a government
public good such as education, or a natural public good such as air.
One of the key aspects of a public good is the fact that anyone can use it, but it doesn’t
diminish its availability. For instance, one person can use a public streetlamp, yet it doesn’t
diminish the ability for someone else to also use it.
Public goods are almost always funded publicly through the government. Perhaps the only
public goods that aren’t, are natural goods such as air, the sun, and such.

What are the Characteristics of Public Goods?

Public goods are characterised by two factors: non-rivalry and non-excludability. Lets look at
them below:

Non-excludability
Non-excludability means that the producer of the good is unable to prevent others from using
it. For instance, it would be extremely difficult to prevent each person from using a traffic light.
Doing so would require extreme levels of management and prevent the use of certain roads.
At the same time, non-excludability means customers cannot be directly charged. If we look
again at traffic lights, it would be difficult but also chaotic to put in place a system whereby
each user pays. So not only is it virtually impossible to prevent use but also collect payment.
Public goods such as defence, policing, and the law are all non-excludable. Everyone benefits
from policing, which makes it impossible to charge some but not others. In turn, this presents
us with the ‘free-rider problem’.

Free Rider Problem

As public goods are non-excludable, everyone has access to them. As a result, we have what
is known as the ‘free-rider problem’, which means that people benefit from the good without
contributing to its payment.
The issue with the free-rider problem stems from the fact that if certain individuals are not
paying, then the rest will also be reluctant to pay. In turn, a private firm would produce fewer
of such goods, resulting in a sub-optimal supply to society. Therefore, the solution would be
for the government to pay for it from general taxation.

With public goods, the initial and subsequent costs are generally borne by the taxpayer. As a
result, it is the taxpayer who bears the cost whilst others can benefit without paying for it.
The free-rider problem is considered a market failure because people are benefiting, yet not
paying for the good. As a result, this can lead to an overuse of public goods. For instance,
policing and the law are usually overstretched beyond their means.

Non-rivalry
With regard to public goods, non-rivalry means that other consumers are not excluded based
on other consumption. In other words, just because Barry is using the streetlight does not
mean that Susan is unable to.
Non-rivalry is often forgotten when looking at public goods. For instance, many will mistakenly
consider universal healthcare as a public good. Whilst there is nothing to stop all citizens
accessing it, there is a rivalrous component.
To explain, the more people who take up a bed in a hospital, the fewer there are for other
patients. Similarly, the more doctors’ appointments taken, the fewer there is available for
everyone else.

Public Goods Defined

There is a level of confusion that surrounds public goods. It may meet certain criteria to an
extent but does not meet the two characteristics. These can be split down into four distinct
categories: private goods, common goods, club goods, and public goods.
Private Goods
Private goods are those that are both excludable and rivalrous. In other words, people can be
prevented from benefiting from the product. At the same time, the more one person
consumes, the less there is available to others.
Such examples include: electronics, food, clothing, furniture, and most consumer goods.

Common Goods
Common goods are those that are non-excludable, but rivalrous. In other words, consumers
cannot be stopped from benefiting from the good. However, it is rivalrous, which means that
some may be excluded due to the consumption of others.
Such examples include: fish stocks, coal, timber, and other natural resources.

Club Goods
Club goods are those that are excludable, but non-rivalrous. In other words, a private firm is
able to prevent people who do not paying from using it. Yet its increased consumption does
not prevent others from accessing it.
Such examples include: TV, parks, and magazine subscriptions.

Public Goods
Public goods are those that are both non-excludable and non-rivalrous. IN other words, the
supplier cannot prevent people from using the good, nor will its consumption prevent others
from accessing it.
Such examples include: defence, policing, and streetlights.

Public Goods and Market Failure

Part of the argument for governments to provide public goods is market failure. If private
companies are unable or unwilling to provide a good, then government should step in. The
reasoning for such is that public goods are seen to create a greater social benefit than the
individual cost.
For example, everyone may be willing to spend $1 per month for policing. However, when
measured collectively, this figure tends to increase.
Consumers will value a public good more highly in the knowledge that others are also paying
for it. As a result, the social value is said to be maximised when provided for by the public.

Argument against Public Goods

The issue with such is that it brings value to individuals who have not paid for the goods. This
comes under the ‘free-rider’ problem.
So whilst it may create social benefits, it comes at a greater cost to some. For example,
society may value the goods more highly, but this extra value is borne by involuntary taxation.
If we look at defence for example, some agree with having a large military, and some don’t.
By increasing the size of the military, jobs are create, and it can be argued that greater social
value is created through more sophisticated defence systems.
However, it is completely involuntary, and the minority must submit to the wishes of the
majority.

Examples of Public Goods

Public goods must be both non-excludable and non-rivalrous. This is often overlooked when
claiming certain goods to be ‘public goods’.
For instance, healthcare is often classified as a public good, as well as roads, tunnels, and
bridges. However, they are all goods than can easily exclude others.
For example, toll roads can prevent the use of roads if there is no payment. These are known
as ‘Quasi-public goods’, which we will look at in the next section.
However, let us first look at some examples of public goods.

Defence
Non-excludable in the fact that a nation can provide defence, yet everyone can benefit. Many
will disagree or agree on the importance of defence spending, but it is impossible to exclude
people from military protection (good or bad).
It is also non-rivalrous in the fact that defence is not actually consumable. In other words, one
person cannot consume a level of defence. It is universal and non-consumable.

Lighthouses
One of the classic examples of public goods. It is non-excludable in the fact that it would be
difficult to prevent ships from sailing by and benefiting.
At the same time, it is non-rivalrous in that many ships can use the lighthouse at the same
time without diminishing others ability to use it.

Clear Air
A public good that is not actually provided for by private or public organisations. Air is a
natural element, although clean air is free from pollution.
Nevertheless, air items if non-excludable. It is everywhere on earth, so it is non-excludable to
anyone. At the same time, air is so plentiful that its consumption does not prevent anyone
else’s.

Streetlamps
It is near impossible to exclude people form making use of streetlamp at night. It is also
impossible to obtain payment fro each and everyone that uses it.
Furthermore, streetlamp are equally non-rivalrous. One person standing under a streetlamp
does no prevent someone else walking by from benefiting from the light.
Quasi-Public Goods
Quasi-public goods are a sort of hybrid between private goods and public goods. They have
characteristics of both. For example, they are partially excludable, and are partially rivalrous.
Some of these goods include roads, tunnels, the internet, and TV.

Whilst such goods are commonly non-excludable, there are toll roads, pay-to-access
websites, and premium cable TV. All of them require payment to access and can easily and
profitably exclude people.
Quasi-public goods are sometimes considered public goods because private businesses may
be unwilling or unable to fulfil the nations demand.
For instance, private companies may be able to construct new roads and implement tolls.
However, they are unlikely to be able to do this on a national scale.

Public Goods vs Private Goods

Private goods and public goods are complete opposites. Whilst public goods are non-rivalrous
and non-excludable, private goods are rivalrous and excludable. In other words, public goods
are unable to exclude people.
By contrast, a private good can exclude people from its use, usually in a monetary fashion.
For instance, you have to pay to get into the cinema.
The cinema prevents those without a ticket from getting into the theatre. By contrast, there is
no feasible way of doing this. That, or it would be incredibly expensive to do so.
Public Goods = Non-rivalrous and Non-excludable
Private Goods = Rivalrous and Excludable
At the same time, private goods are rivalrous. In other words, the more one person
consumers, the less there is for others. For instance, cakes in a bakery. There is only a
limited quantity at any one time. So the more customers that purchase doughnuts the fewer
are available to others.