What is a Public Good?

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Definition:

A public good is a product, service, or resource that everyone can access (nonexclusionary) and one person’s consumption doesn’t prevent another from enjoying it (nonrivalrous).

🤔 Understanding public goods

A public good is nonexclusionary, meaning people have open access to it. Public roads, sidewalks, street lighting, and the air you breathe are all examples of nonexclusionary goods. These goods are nonrivalrous, meaning your consumption doesn’t prevent others from consuming a good. Think of a radio broadcast — If you tune in to a specific frequency, it doesn’t prevent others from listening to that same station. Governments often manage public goods, but sometimes private markets produce them.

Example

Imagine you’re driving down the road and tune in to your favorite radio station. The playlist is exactly what you want, and the long commute instantly becomes more enjoyable. And unlike with the Internet and mobile data, you don’t need to pay to listen to the radio.

That’s because radio waves are a public good. Access is open to everyone with a radio. When you tune in to a specific station, it doesn’t prevent or hinder others from listening. Your consumption of radio waves is “nonrivalrous.”

Takeaway

A public good is like throwing a free dance party for your community...

Everyone can partake and listen to the music and dance as much as they want. Similarly, public goods are open to all (nonexclusionary), and consumption doesn’t prevent others from enjoying them (nonrivalrous).

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What is a public good?

Public goods are nonexcludable and nonrivalrous. Nonexcludable means that it’s difficult to stop people from accessing a resource. For example, anyone with a TV antenna can pick up broadcast TV waves. Nonrivalrous means that one party’s consumption or use of a good doesn’t exclude others from using it. When you tune into a broadcast TV station, you don’t reduce or weaken the signal for others. In this sense, the supply of broadcast TV waves is infinite and isn’t reduced by consumption.

Sunlight is an example of a public good. There’s no practical way to completely exclude anyone from using sunlight ( it’s nonexcludable). Individual use also doesn’t reduce the supply of light, so your consumption is nonrivalrous. If you’re strolling down the road, and your neighbor is walking on the other side, you’re both using the sunlight but not excluding each other.

Governments often control or regulate public goods. In the United States, federal, state, and local governments maintain and regulate roads and other infrastructure. A licensed driver can drive on most public streets.

Markets and private companies can also provide public goods. For example, anyone could buy a radio and tune in to private radio stations. With the current technology, there’s no practical way to stop people from listening. Since access is open, radio companies make money by selling ads. A larger audience allows them to charge more.

Without regulation, public goods may suffer from the "tragedy of the commons" — which shows why shared common resources, including fishing grounds, have a tendency to be over-exploited, leading to their collapse.

What are some examples of public goods?

Governments provide or regulate many public goods. For example, national defense is a public good. The U.S. military protects America and its interests for all of its citizens, even those who don’t pay taxes. National defense even protects people who may not want protection, such as anti-government protestors and pacifists.

Still, governments don’t have a monopoly on public goods. The non-profit organization Wikipedia is one example. Anyone with access to the internet can use Wikipedia for free.

Education and research are another example. Organizations can restrict access to information, such as charging tuition before allowing students to enroll in a class. But people can still learn about educational topics on the Internet and benefit from scientific research, making much knowledge a public good.

Lighthouses are another example of a public good. There’s no practical way to allow some ships to use them while excluding others.

If you’ve ever walked on a public sidewalk, you’ve used a public good, because anyone can use them. Of course, a company could build a sidewalk on its private property and exclude people from using it. However, it’s not the private ownership of the sidewalk that makes it a private good. It’s the excludability. If a company builds a local park and allows everyone unrestricted, free access, it’s a public good.

What are the characteristics of a public good?

In economic theory, a public good has two defining characteristics. First, the resource is nonexcludable, meaning it’d be difficult or even impossible to restrict people from using it. Consider the atmosphere. It’d be impossible for a government or company to exclude access to air.

A public good is also “nonrivalrous,” which means that when a person consumes the resource, it doesn’t exclude others from accessing it. When you breathe in air, you don’t prevent others from breathing.

A cake is a rivalrous product. If you consume a slice, no one else can eat that piece.

With nonrivalrous goods, the additional money needed to provide access are nonexistent or negligible. The costs to operate a lighthouse, for example, are the same whether a hundred ships or a thousand ships rely on it. The same is true for radios. It doesn’t matter how many people tune in, the costs are the same.

Pure versus impure public goods

A pure public good is perfectly nonexcludable and nonrivalrous. People could consume as much as they want, and doing so would generate no added costs. Very few things, such as radio waves, meet these criteria.

Many resources are instead “impure” public goods because they’re not fully nonexcludable or nonrivalrous. Sidewalks may seem nonrivalrous, for example. However, if enough people crowd on the sidewalk, people can be prevented from using it. Likewise, public parks are open to visitors, but the government may charge entrance fees, cap visitors, or otherwise regulate their use, making them impure public goods.

Also consider roadways, which might seem like pure public goods. However, roads can quickly become congested. If traffic is bad enough, commuters may take the subway or ride their bikes to work instead. Streets are not perfectly nonrivalrous, as vehicles take up space.

What is the difference between public goods and private goods?

When you hear the term “public good,” you might think about resources provided by the government, such as public parks and roads. Many of these are public resources, but the government’s involvement isn’t a defining characteristic. It doesn’t matter if a company or public authorities provides them, nonexcludable and nonrivalrous resources are public if they meet the necessary criteria.

Public goods often result in market failure because they are nonexcludable. Firms are likely to struggle with selling products if they can’t restrict access.

If an entrepreneur wanted to stage a fireworks show in a town and charge viewers, he or she would struggle to raise funds. Locals could watch from home or the park. If a business person wanted to make money, he or she would have to restrict access — perhaps by holding the display in a remote location and only allowing entrance to paying customers.

Public goods produce a free-rider problem, meaning people can use the resources without purchasing them. As a result, private markets often can’t provide them. Since public goods can generate market failures, public authorities often manage or regulate them.

Governments may stage fireworks shows and can support other public goods, like police services and national defense. It’d be difficult or undesirable to make these private.

A pure private good is both excludable and rivalrous. Access is restricted, and if you consume the resource, you deny it to others. Take a pizza, for example. You need to buy pizzas, and if you eat a slice, others can no longer eat that slice.

Just as there are impure public goods, there are impure private goods. Many resources are not fully excludable or rivalrous.

If someone buys an album from their favorite musician, they could play it at the local park, allowing others to listen for free. Or, people may pirate movies and music, downloading them over the Internet without paying.

Private goods are most commonly produced by firms looking to make a profit. Many countries enforce private property rights, such as copyright protection, to protect markets and ensure that companies can produce profits.

What is the relationship between market failure and public goods?

Public goods can lead to market failures. Free riders, or people who use a product or service but don’t pay for it, are a serious problem. Individuals acting rationally and for their own benefit will often use the resource without paying. This makes it hard for companies to generate profit.

Externalities, which are spillover effects that impact parties not involved in a transaction, are another problem. Positive externalities benefit third-parties. Increased education levels, for example, may reduce crime, which benefits society. Negative externalities are detrimental to outside parties. If companies pollute a water supply, they could expose residents to dangerous chemicals, and the community may have to foot the cleanup bill.

Private markets typically underproduce goods with positive externalities because companies have to pay for all the production costs but won’t enjoy the complete profits. Meanwhile, markets will often overproduce things with negative externalities because firms keep the profits while expenses are shared.

Since public goods can cause market failures, the government often manages or regulates them.

What is a quasi-public good?

Many things seem like public goods but don’t fit the definition perfectly. A quasi-public good exhibits some characteristics of both public and private goods. The resource may have partial excludability or partial rivalry.

Take beaches, for example. It’s possible to restrict access to them by requiring people to pay for their use. Some private companies own beaches and charge access fees. While access to many beaches is open, this is by choice, and governments can (and sometimes will) make access excludable.

A beach also has a maximum capacity. If too many folks head to the beach, it may lead to overcrowding. Space is ultimately limited. Once at full capacity, people might have to look elsewhere to put down their towels. This results in a partial rivalry.

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