A public good is often (though not always) under-provided in a free market because of its characteristics of non-rivalry and non-excludability.
Public goods have two characteristics:
- Non-rivalry: This means that when a good is consumed, it doesn’t reduce the amount available for others.
– E.g. benefiting from a street light doesn’t reduce light for others, but eating an apple would.
- Non-excludability: This occurs when it is not possible to provide a good without it being possible for others to enjoy. E.g erecting a dam to stop flooding, or providing law and order.
Free Rider Problem
The problem with public goods is that they have a free rider problem. This means that it is not possible to prevent anyone from enjoying a good once it has been provided. Therefore there is no incentive for people to pay for the good because they can consume it without paying for it.
- However this will lead to there being no good being provided.
- Therefore there will be social inefficiency.
- Therefore there will be a need for the govt to provide it directly out of general taxation.
Examples of Public Goods
- Public Defence,
- Street Lights,
- Police service
- Flood defences
These are goods which have an element of non-excludability and non-rivalry, roads are a good example. Once provided most people can use them, for example, those who have a driving licence. However, when you use a road, the amount others can benefit is reduced to some extent, because there will be increased congestion.
Public spending and public goods
One possible area of confusion. We talk about public spending. This is spending done by the government. e.g UK public spending
However, not all government (public) spending is on ‘public goods’, e.g. government will also spend on other goods and services, .e.g. – merit goods, like education and health care.
In economics, a ‘public good; has those two specific characteristics.