Definition
Public goods are commodities or services that are made available to all members of society by the government. These goods are characterized by two main features: non-excludability and non-rivalry. Non-excludability means that it is not possible to prevent anyone from using the good, and non-rivalry means that one person’s use of the good does not diminish another person’s ability to use it. Public goods stand in contrast to private goods, which are both excludable and rivalrous.
Examples
1. National Defense
National defense is a classic example of a public good. The protection provided by a country’s military establishment is available to all citizens without exclusion, and one person’s security does not reduce the security available to others.
2. Public Parks
Public parks are non-excludable and non-rivalrous up to a point. They provide recreational space that anyone can use, and one person’s enjoyment of the park generally does not diminish another’s. However, overcrowding can somewhat introduce rivalrous elements.
3. Street Lighting
Street lighting provides illumination in public spaces that is available to all residents and passers-by. The use of light by one individual does not reduce the amount of light available to others, making it a public good.
Frequently Asked Questions
What distinguishes public goods from private goods?
Public goods are non-excludable and non-rivalrous, meaning they are available to all and one person’s use does not reduce availability to others. Private goods, in contrast, are both excludable and rivalrous.
Can public goods be provided by the private sector?
While theoretically possible, the private provision of public goods often leads to underproduction because of the free-rider problem, where individuals can benefit without paying for the good. Therefore, government provision is usually more effective.
Why are police services considered public goods?
Police services ensure public safety and order, which are non-excludable and generally non-rivalrous benefits. The presence of police protection benefits the entire community.
Does the concept of public goods apply to digital products?
Yes, digital products such as publicly funded online education resources can be considered public goods if they are freely accessible and non-rivalrous.
What is the free-rider problem?
The free-rider problem occurs when individuals can benefit from a good without paying for it, leading to potential underfunding or underproduction of that good when left to the private market.
Related Terms
Externalities
Definition: Positive or negative consequences of economic activities that affect third parties and are not reflected in market prices. Public goods can mitigate negative externalities and enhance positive ones.
Common Goods
Definition: Resources that are non-excludable but rivalrous, such as fisheries or public grazing lands. Unlike public goods, common goods can be depleted through overuse.
Public Policy
Definition: Strategies and actions taken by a government to manage public goods and address societal needs, including regulation and provision of services.
Club Goods
Definition: Goods that are excludable but non-rivalrous, such as subscription-based services or private parks. They sit between public and private goods.
Online References
Suggested Books for Further Studies
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“Economics of the Public Sector” by Joseph E. Stiglitz
- A comprehensive look into public sector economics, examining how the public sector can most effectively provide goods and services.
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“Public Finance and Public Policy” by Jonathan Gruber
- This text explores the relationship between public policy and public goods, providing real-world examples and policy implications.
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“The Welfare State and Public Goods” by Hans-Werner Sinn
- An insightful exploration of how the welfare state and public goods provision intertwine, focusing on efficiency and equity.
