Public Goods

There are 2 characteristics to determine whether a good is a public good, a private good, or a quasi-public good. The first is exclusiveness; can non-payers be excluded from consuming the good, and the second is rivalry; once consumed by one consumer, it can’t be consumed by another.

A public good is non-exclusive and non-rivalry, consumers cannot be excluded from consuming the good and consumption by one person does not affect the amount of the good available for others to consume. An example of this is street lights.

A private good, is a good that once consumed by one person cannot be consumed by anybody else, such a good has excludability and rivalry. Most goods are private goods. An example of this is a t-shirt, you have to pay to buy it, and if you are wearing it, no-one else can be.

If a good passes one of the tests but not both then it can be considered a quasi-public good. For example a park can be considered a quasi-public good during busy times and no-one is excluded but there can be rivalry, perhaps to go on the swing etc.

The free-rider problem is when an individual cannot be excluded from consuming a good, and thus has no incentive to pay for its provision. The free-rider problem leads to a market failure as a private firm wouldn’t be able to provide a public good. This is because if it is non-exclusive then there will always be free-riders who won’t pay and so the firm won’t make expected profits to provide the public good. That is why the government has to intervene with compulsory taxes to provide public goods.

Page last updated on 20/10/13