Resources | Subject Notes | Economics
Public goods are a distinct category of goods and services that differ significantly from private goods. Their characteristic feature is that they do not preclude the consumption of the good by one person from preventing the same good from being consumed by another.
The defining characteristic of a public good is the absence of rivalry and excludability.
The non-rivalrous and non-excludable nature of public goods leads to a market failure. Without government intervention, private markets typically under-supply public goods because it's difficult to charge for them and individuals have an incentive to be "free riders" (benefit without paying).
Common examples of public goods include:
The free-rider problem is a major challenge in the provision of public goods. Because individuals can benefit from the good without contributing to its cost, there is a disincentive to pay for it. This can lead to insufficient funding and under-provision.
Governments often play a crucial role in the provision of public goods because they can overcome the free-rider problem through taxation and compulsory funding. This allows for the provision of goods that the private sector would not efficiently supply.
| Characteristic | Definition |
|---|---|
| Rivalry | If one person consumes the good, is it available for others to consume? |
| Excludability | Can people be prevented from consuming the good if they don't pay for it? |
| Non-rivalrous | Consumption by one person does not diminish the availability for others. |
| Non-excludable | It is impossible or very costly to prevent people from consuming the good. |