Public good

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A public good is a good which is nonexcludable and nondepletable (or non-rivalrous). The first condition means that it is impossible to keep anyone from partaking in the good, and the second condition means that one consumer's consumption of the good does not prevent others from consuming it. It is therefore inefficient for private companies to produce public goods, since they cannot ensure that customers pay them for it. Therefore, the government produces most public goods so it can collect compensation through taxes.

Explained another way, a public good is available to all such that consumption by one person does not reduce its availability to others.

There is some controversy as to whether any public goods actually exist. For instance, lighthouses were once deemed to be public goods, since anyone who sails by can use the lighthouse to avoid hitting reefs, without having to pay a fee. But in some cases, lighthouses have been funded by nearby harbors, without the need for government subsidies.[1] Likewise, radio broadcasts are non-excludable and non-rivalrous in that it is difficult to force listeners to pay a fee, but such broadcasts are usually funded through advertising. The proven economic viability of private security suggests that even some aspects of the core government function of crime control, thought to be a public good, might be privatized.

In some cases, a good may be somewhat nonexcludable and nonrivalrous, but nonetheless, the person who pays receives a greater benefit than the freeloaders. An example would be the Lo-Jack security system that can be used by police to triangulate the position of a stolen car. The existence of such devices deters car theft everywhere, since car thieves do not know which cars have it and which don't. But those who buy the device are more likely to be able to recover their vehicles in the event theft does occur.

Examples

  • National defense. It protects every resident of the country, and one person's partaking of it does not diminish its benefits to others.
  • Public parks.
  • The Internet.

References

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