Public good

The notion of public goods encompasses a range of goods that markets fail to allocate efficiently because they are non-rivalrous and non-excludable in nature. Goods that have both these characteristics are termed pure public goods. A good is non-rivalrous when more than one person can derive benefits from its consumption when its supply does not change. As such, prices do not serve their normal allocative function. Further, a good is non-excludable when its use by one consumer does not preclude its use by another. These two characteristics cause either undersupply by the market, as firms cannot receive a return on the investment needed to produce the good, or congestion, as too many consumers attempt to use the good. Rationally, suppliers will always prefer to allow others to invest in the production of the good and then free ride on the resulting benefits. Pure public goods are generally rare, and economists have created several useful subdivisions that describe a good by its excludability and rivalry. Non-excludability and rivalry lead to open access, common property resources, and free goods. Excludability and non-rivalry characterize toll goods such as a bridge. Public goods also have a regional quality to them, and economists generally distinguish between local, regional, national, international, and global public goods. In light of the free-rider problem, there are four possible strategies of government intervention. The first involves taxation. One problem with this mode of intervention is that it is difficult to ascertain the amount of demand for a good (i.e., an individual’s valuation for the good) and thus how much to supply. A second strategy involves subsidies to private firms to encourage them to produce the public good. Third, excludability can also be created through legislation and intellectual property schemes follow this model by prohibiting the free flow of information as a pure public good. Edited by Dianzhuo ZHU, extracted from Bevir, M. (2007).