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Economics Forum 1: Public Goods

Posted by on February 5, 2009

[This post was originally written for my employer’s blog, Show-Me Daily.]

Todays blog post from me will be the first in what I hope to make a series of open dialogues with the readers of Show-Me Daily on economic topics. Today’s topic is public goods.

There are many misconceptions about what constitutes a public good. It seems like state parks, public schools, roads, and many other things currently provided by the government are public goods. In a sense, they are. They are what economists call “goods”: people would pay to use them if they weren’t free(as opposed to “bads,” which people pay to get rid of; garbage is an example). And they are publicly owned — that is, owned by the state — which ostensibly means that every person has an equal claim to them, and that no one can forbid anyone else from using them.

Economists, however, are very specific when they speak of public goods. A public good is any good which is non-rival and non-excludable. Don’t get scared by the terms. A rival good is one where my using or consuming it prevents you from using or consuming it, like a bike, an apple, or a particular seat at a concert. So a non-rival good is something that, if consumed or used by one doesn’t diminish anyone else’s ability to use or consume it, like listening to a concert (on the radio, or a recording, or from your own house if you live next to the Verizon Wireless Amphitheater (formerly Riverport).

Another example of something non-rival is … this blog. When you read it, this doesn’t diminish anyone else’s ability to read it (the bandwidth of our server is rival, of course, but thankfully Google creates backup locations where websites can be found when their bandwidth is exceeded). The air is often cited as an example of something non-rival, but some economists dispute this. National Defense is also a commonly cited non-rival good. No matter who pays to defend our borders, everyone inside gets protected.

Excludability is a bit tougher to pin down. Simply put, a good is excludable if it is possible to prevent someone who didn’t pay for it from consuming it. So, it seems that the air is non-excludable, and big screen TVs are excludable. The tricky part comes in realizing that excludability is actually a range of values, not just yes or no. Anything can be excludable, depending on how much you are willing to pay to stop particular people, or people in general, from consuming it. And anything can be non-excludable: you could consume anything you want, as long as no one were to stop you.

There is a modicum of security in place at most businesses designed to prevent people from treating their goods as non-excludable, but these systems are not perfect. Excludability for any item exists on a continuum from cheap to exclude (bus riders who don’t want to pay) to expensive to exclude (people who live next to Riverport; the amphitheater’s owners could build a soundproof dome around the place, but why would they?).

I’ve gone on long enough. A public good is that which is non-rival and non-excludable. Think about it and comment away! What surprising results does this lead to? Is fire protection service a public good? Which public goods do you think the government should or should not provide? I am eager to hear what everyone thinks. Expect my next Econ Forum post soon.

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