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economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
, a public good (also referred to as a social good or collective good)Oakland, W. H. (1987). Theory of public goods. In Handbook of public economics (Vol. 2, pp. 485-535). Elsevier. is a good that is both
non-excludable In economics, a good, service or resource are broadly assigned two fundamental characteristics; a degree of excludability and a degree of rivalry. Excludability is defined as the degree to which a good, service or resource can be limited to only ...
and
non-rivalrous In economics, a good is said to be rivalrous or a rival if its consumption by one consumer prevents simultaneous consumption by other consumers, or if consumption by one party reduces the ability of another party to consume it. A good is conside ...
. For such goods, users cannot be barred from accessing or using them for failing to pay for them. Also, use by one person neither prevents access of other people nor does it reduce availability to others. Therefore, the good can be used simultaneously by more than one person. This is in contrast to a
common good In philosophy, economics, and political science, the common good (also commonwealth, general welfare, or public benefit) is either what is shared and beneficial for all or most members of a given community, or alternatively, what is achieved by c ...
, such as wild fish stocks in the ocean, which is non-excludable but rivalrous to a certain degree. If too many fish were harvested, the stocks would deplete, limiting the access of fish for others. A public good must be valuable to more than one user, otherwise, the fact that it can be used simultaneously by more than one person would be economically irrelevant.
Capital goods The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Researc ...
may be used to produce public goods or services that are "...typically provided on a large scale to many consumers."Tatom, J. A. (1991). Should government spending on capital goods be raised?. Federal Reserve Bank of St. Louis Review, 73(3), 3-15. Accessed a

Unlike other types of economic goods, public goods are described as “non-rivalrous” or “non-exclusive,” and use by one person neither prevents access of other people nor does it reduce availability to others. Similarly, using capital goods to produce public goods may result in the creation of new capital goods. In some cases, public goods or services are considered "...insufficiently profitable to be provided by the private sector.... (and), in the absence of government provision, these goods or services would be produced in relatively small quantities or, perhaps, not at all." Public goods include
knowledge Knowledge can be defined as awareness of facts or as practical skills, and may also refer to familiarity with objects or situations. Knowledge of facts, also called propositional knowledge, is often defined as true belief that is distin ...
, Joseph E. Stiglitz, "Knowledge as a Global Public Good" in ''Global Public Goods'',
official statistics Official statistics are statistics published by government agencies or other public bodies such as international organizations as a public good. They provide quantitative or qualitative information on all major areas of citizens' lives, such as ...
,
national security National security, or national defence, is the security and defence of a sovereign state, including its citizens, economy, and institutions, which is regarded as a duty of government. Originally conceived as protection against military att ...
,
common language A lingua franca (; ; for plurals see ), also known as a bridge language, common language, trade language, auxiliary language, vehicular language, or link language, is a language systematically used to make communication possible between groups ...
s,
law enforcement Law enforcement is the activity of some members of government who act in an organized manner to enforce the law by discovering, deterring, rehabilitating, or punishing people who violate the rules and norms governing that society. The term ...
, public parks, free roads,
television Television, sometimes shortened to TV, is a telecommunication medium for transmitting moving images and sound. The term can refer to a television set, or the medium of television transmission. Television is a mass medium for advertising, ...
and
radio broadcasts Radio broadcasting is transmission of audio (sound), sometimes with related metadata, by radio waves to radio receivers belonging to a public audience. In terrestrial radio broadcasting the radio waves are broadcast by a land-based radio sta ...
. Additionally,
flood control Flood control methods are used to reduce or prevent the detrimental effects of flood waters."Flood Control", MSN Encarta, 2008 (see below: Further reading). Flood relief methods are used to reduce the effects of flood waters or high water level ...
systems,
lighthouse A lighthouse is a tower, building, or other type of physical structure designed to emit light from a system of lamps and lenses and to serve as a beacon for navigational aid, for maritime pilots at sea or on inland waterways. Lighthouses m ...
s, and street lighting are also common social goods. Collective goods that are spread all over the face of the earth may be referred to as global public goods. This is not limited to physical book literature, but also media, pictures and videos. For instance, knowledge is well shared globally. Information about men,
women A woman is an adult female human. Prior to adulthood, a female human is referred to as a girl (a female child or Adolescence, adolescent). The plural ''women'' is sometimes used in certain phrases such as "women's rights" to denote female hum ...
and
youth Youth is the time of life when one is young. The word, youth, can also mean the time between childhood and adulthood ( maturity), but it can also refer to one's peak, in terms of health or the period of life known as being a young adult. Yo ...
health awareness,
environmental issues Environmental issues are effects of human activity on the biophysical environment, most often of which are harmful effects that cause environmental degradation. Environmental protection is the practice of protecting the natural environment on t ...
, and maintaining
biodiversity Biodiversity or biological diversity is the variety and variability of life on Earth. Biodiversity is a measure of variation at the genetic ('' genetic variability''), species ('' species diversity''), and ecosystem ('' ecosystem diversity'') ...
is common knowledge that every individual in the society can get without necessarily preventing others access. Also, sharing and interpreting
contemporary history Contemporary history, in English-language historiography, is a subset of modern history that describes the historical period from approximately 1945 to the present. Contemporary history is either a subset of the late modern period, or it is ...
with a cultural lexicon, particularly about protected cultural heritage sites and monuments are other sources of knowledge that the people can freely access. Public goods problems are often closely related to the "free-rider" problem, in which people not paying for the good may continue to access it. Thus, the good may be under-produced, overused or degraded. Public goods may also become subject to restrictions on access and may then be considered to be
club goods Club may refer to: Arts, entertainment, and media * ''Club'' (magazine) * Club, a ''Yie Ar Kung-Fu'' character * Clubs (suit), a suit of playing cards * Club music * "Club", by Kelsea Ballerini from the album ''kelsea'' Brands and enterprises ...
; exclusion mechanisms include toll roads, congestion pricing, and
pay television Pay television, also known as subscription television, premium television or, when referring to an individual service, a premium channel, refers to subscription-based television services, usually provided by multichannel television providers, b ...
with an encoded signal that can be decrypted only by paid subscribers. There is a good deal of debate and literature on how to measure the significance of public goods problems in an economy, and to identify the best remedies.


Academic literature on public goods

Paul A. Samuelson is usually credited as the economist who articulated the modern theory of public goods in a mathematical formalism, building on earlier work of Wicksell and Lindahl. In his classic 1954 paper ''The Pure Theory of Public Expenditure'',
See also
he defined a public good, or as he called it in the paper a "collective consumption good", as follows:
oodswhich all enjoy in common in the sense that each individual's consumption of such a good leads to no subtractions from any other individual's consumption of that good...
A Lindahl tax is a type of taxation brought forward by Erik Lindahl, an economist from Sweden in 1919. His idea was to tax individuals, for the provision of a public good, according to the marginal benefit they receive. Public goods are costly and eventually someone needs to pay the cost. It is difficult to determine how much each person should pay. So, Lindahl developed a theory of how the expense of public utilities needs to be settled. His argument was that people would pay for the public goods according to the way they benefit from the good. The more a person benefits from these goods, the higher the amount they pay. People are more willing to pay for goods that they value. Taxes are needed to fund public goods and people are willing to bear the burden of taxes. Additionally, the theory dwells on people's willingness to pay for the public good. From the fact that public goods are paid through taxation according to the Lindahl idea, the basic duty of the organization that should provide the people with this services and products is the government. The services and public utility in most cases are part of the many governmental activities that government engage purely for the satisfaction of the public and not generation of profits. In the introductory section of his book, ''Public Good Theories of the Nonprofit Sector,'' Bruce R. Kingma stated that;
In the Weisbrod model nonprofit organizations satisfy a demand for public goods, which is left unfilled by government provision. The government satisfies the demand of the median voters and therefore provides a level of the public good less than some citizens'-with a level of demand greater than the median voter's-desire. This unfilled demand for the public good is satisfied by nonprofit organizations. These nonprofit organizations are financed by the donations of citizens who want to increase the output of the public good.


Terminology, and types of goods

Non-rivalrous: accessible by all while one's usage of the product does not affect the availability for subsequent use. Non-excludability: that is, it is impossible to exclude any individuals from consuming the good. Pay walls and memberships are common ways to create excludability. Pure public: when a good exhibits the two traits, non-rivalry and non-excludability, it is referred to as the pure public good. Pure public goods are rare. Impure public goods: the goods that satisfy the two public good conditions ('' non-rivalry'' and '' non-excludability'') only to a certain extent or only some of the time. Private good: The opposite of a public good which does not possess these properties. A loaf of bread, for example, is a private good; its owner can exclude others from using it, and once it has been consumed, it cannot be used by others. Common-pool resource'':'' A good that is rivalrous but ''non-excludable''. Such goods raise similar issues to public goods: the mirror to the ''public goods problem'' for this case is the ' tragedy of the commons', where the unfettered access to a good sometimes results in the overconsumption and thus depletion of that resource. For example, it is so difficult to enforce restrictions on deep-sea fishing that the world's fish stocks can be seen as a non-excludable resource, but one which is finite and diminishing.
Club good Club may refer to: Arts, entertainment, and media * ''Club'' (magazine) * Club, a '' Yie Ar Kung-Fu'' character * Clubs (suit), a suit of playing cards * Club music * "Club", by Kelsea Ballerini from the album ''kelsea'' Brands and enterprises ...
s: are the goods that excludable but are non-rivalrous such as private parks. Mixed good: final goods that are intrinsically private but that are produced by the individual consumer by means of private and public good inputs. The benefits enjoyed from such a good for any one individual may depend on the consumption of others, as in the cases of a crowded road or a congested national park.


Definition matrix


Challenges in identifying public goods

The definition of non-excludability states that it is impossible to exclude individuals from consumption. Technology now allows radio or TV broadcasts to be encrypted such that persons without a special decoder are excluded from the broadcast. Many forms of
information good Information goods are commodities that provide value to consumers as a result of the information it contains and refers to any good or service that can be digitalized. Examples of information goods includes books, journals, computer software, music ...
s have characteristics of public goods. For example, a poem can be read by many people without reducing the consumption of that good by others; in this sense, it is non-rivalrous. Similarly, the information in most patents can be used by any party without reducing consumption of that good by others.
Official statistics Official statistics are statistics published by government agencies or other public bodies such as international organizations as a public good. They provide quantitative or qualitative information on all major areas of citizens' lives, such as ...
provide a clear example of information goods that are public goods, since they are created to be non-excludable. Creative works may be excludable in some circumstances, however: the individual who wrote the poem may decline to share it with others by not publishing it.
Copyright A copyright is a type of intellectual property that gives its owner the exclusive right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, educatio ...
s and
patent A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A ...
s both encourage the creation of such non-rival goods by providing temporary monopolies, or, in the terminology of public goods, providing a legal mechanism to enforce excludability for a limited period of time. For public goods, the "lost revenue" of the producer of the good is not part of the definition: a public good is a good whose consumption does not reduce any other's consumption of that good. Public goods also incorporate private goods, which makes it challenging to define what is private or public. For instance, you may think that the community soccer field is a public good. However, you need to bring your own cleats and ball to be able to play. There is also a rental fee that you would have to pay for you to be able to occupy that space. It is a mixed case of public and private goods. Debate has been generated among economists whether such a category of "public goods" exists. Steven Shavell has suggested the following:
when professional economists talk about public goods they do ''not'' mean that there are a general category of goods that share the same economic characteristics, manifest the same dysfunctions, and that may thus benefit from pretty similar corrective solutions...there is merely an infinite series of particular problems (some of
overproduction In economics, overproduction, oversupply, excess of supply or glut refers to excess of supply over demand of products being offered to the market. This leads to lower prices and/or unsold goods along with the possibility of unemployment. The d ...
, some of underproduction, and so on), each with a particular solution that cannot be deduced from the theory, but that instead would depend on local empirical factors.
There is a common misconception that public goods are goods provided by the
public sector The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, inf ...
. Although it is often the case that government is involved in producing public goods, this is not always true. Public goods may be ''naturally'' available, or they may be produced by private individuals, by firms, or by non-state groups, called
collective action Collective action refers to action taken together by a group of people whose goal is to enhance their condition and achieve a common objective. It is a term that has formulations and theories in many areas of the social sciences including psyc ...
. The theoretical concept of public goods does not distinguish geographic region in regards to how a good may be produced or consumed. However, some theorists, such as
Inge Kaul Inge Kaul is an adjunct professor at the Hertie School of Governance, Berlin, Germany and advisor to various governmental, multilateral and non-profit organizations on policy options to meet global challenges. She specializes in Global public good ...
, use the term " global public good" for a public good which is non-rivalrous and non-excludable throughout the whole world, as opposed to a public good which exists in just one national area. Knowledge has been argued as an example of a global public good, but also as a commons, the
knowledge commons The term "knowledge commons" refers to information, data, and content that is collectively owned and managed by a community of users, particularly over the Internet. What distinguishes a knowledge commons from a commons of shared physical resources ...
. Graphically, non-rivalry means that if each of several individuals has a demand curve for a public good, then the individual demand curves are summed vertically to get the aggregate demand curve for the public good. This is in contrast to the procedure for deriving the aggregate demand for a private good, where individual demands are summed horizontally. Some writers have used the term "public good" to refer only to non-excludable "pure public goods" and refer to excludable public goods as "
club goods Club may refer to: Arts, entertainment, and media * ''Club'' (magazine) * Club, a ''Yie Ar Kung-Fu'' character * Clubs (suit), a suit of playing cards * Club music * "Club", by Kelsea Ballerini from the album ''kelsea'' Brands and enterprises ...
".


Digital Public Goods

Digital public goods include software, data sets, AI models, standards and content that are
open source Open source is source code that is made freely available for possible modification and redistribution. Products include permission to use the source code, design documents, or content of the product. The open-source model is a decentralized so ...
. Use of the term “digital public good” appears as early as April, 2017 when Nicholas Gruen wrote Building the Public Goods of the Twenty-First Century, and has gained popularity with the growing recognition of the potential for new technologies to be implemented at scale to effectively serve people. Digital technologies have also been identified by countries, NGOs and private sector entities as a means to achieve the
Sustainable Development Goals The Sustainable Development Goals (SDGs) or Global Goals are a collection of 17 interlinked objectives designed to serve as a "shared blueprint for peace and prosperity for people and the planet, now and into the future".United Nations (2017) R ...
(SDGs). A digital public good is defined by the UN Secretary-General's Roadmap for Digital Cooperation, as: “open source software, open data, open AI models, open standards and open content that adhere to privacy and other applicable laws and best practices, do no harm, and help attain the SDGs.”


Examples


Common examples of public goods include

* public
fireworks Fireworks are a class of low explosive pyrotechnic devices used for aesthetic and entertainment purposes. They are most commonly used in fireworks displays (also called a fireworks show or pyrotechnics), combining a large number of devices ...
*
clean air Air pollution is the contamination of air due to the presence of substances in the atmosphere that are harmful to the health of humans and other living beings, or cause damage to the climate or to materials. There are many different types ...
and other
environmental good Environmental goods are typically non-market goods, including clean air, clean water, landscape, green transport infrastructure ( footpaths, cycleways, greenways, etc.), public parks, urban parks, rivers, mountains, forests, and beaches. ...
s *
information good Information goods are commodities that provide value to consumers as a result of the information it contains and refers to any good or service that can be digitalized. Examples of information goods includes books, journals, computer software, music ...
s, such as
official statistics Official statistics are statistics published by government agencies or other public bodies such as international organizations as a public good. They provide quantitative or qualitative information on all major areas of citizens' lives, such as ...
*
open-source software Open-source software (OSS) is computer software that is released under a license in which the copyright holder grants users the rights to use, study, change, and distribute the software and its source code to anyone and for any purpose. ...
*
authorship An author is the writer of a book, article, play, mostly written work. A broader definition of the word "author" states: "''An author is "the person who originated or gave existence to anything" and whose authorship determines responsibility f ...
* public
television Television, sometimes shortened to TV, is a telecommunication medium for transmitting moving images and sound. The term can refer to a television set, or the medium of television transmission. Television is a mass medium for advertising, ...
*
radio Radio is the technology of signaling and communicating using radio waves. Radio waves are electromagnetic waves of frequency between 30  hertz (Hz) and 300  gigahertz (GHz). They are generated by an electronic device called a tr ...
*
invention An invention is a unique or novel device, method, composition, idea or process. An invention may be an improvement upon a machine, product, or process for increasing efficiency or lowering cost. It may also be an entirely new concept. If an ...
*
herd immunity Herd immunity (also called herd effect, community immunity, population immunity, or mass immunity) is a form of indirect protection that applies only to contagious diseases. It occurs when a sufficient percentage of a population has become im ...
*
Wikipedia Wikipedia is a multilingual free online encyclopedia written and maintained by a community of volunteers, known as Wikipedians, through open collaboration and using a wiki-based editing system. Wikipedia is the largest and most-read refer ...


Shedding light on some mis-classified public goods

* Some goods, like
orphan drug An orphan drug is a pharmaceutical agent developed to treat medical conditions which, because they are so rare, would not be profitable to produce without government assistance. The conditions are referred to as orphan diseases. The assignment of ...
s, require special governmental incentives to be produced, but cannot be classified as public goods since they do not fulfill the above requirements (non-excludable and non-rivalrous.) * Law enforcement, streets, libraries, museums, and education are commonly misclassified as public goods, but they are technically classified in economic terms as quasi-public goods because excludability ''is'' possible, but they do still fit some of the characteristics of public goods. * The provision of a
lighthouse A lighthouse is a tower, building, or other type of physical structure designed to emit light from a system of lamps and lenses and to serve as a beacon for navigational aid, for maritime pilots at sea or on inland waterways. Lighthouses m ...
is a standard example of a public good, since it is difficult to exclude ships from using its services. No ship's use detracts from that of others, but since most of the benefit of a lighthouse accrues to ships using particular
port A port is a maritime facility comprising one or more wharves or loading areas, where ships load and discharge cargo and passengers. Although usually situated on a sea coast or estuary, ports can also be found far inland, such as H ...
s, lighthouse maintenance can be profitably bundled with port fees (
Ronald Coase Ronald Harry Coase (; 29 December 1910 – 2 September 2013) was a British economist and author. Coase received a bachelor of commerce degree (1932) and a PhD from the London School of Economics, where he was a member of the faculty until 1951. ...
, ''
The Lighthouse in Economics "The Lighthouse in Economics" is a 1974 Academic publishing, academic paper written by United Kingdom, British economist Ronald H. Coase, the 1991 winner of thNobel Prize in Economic Sciences This paper challenges the traditional view in economics ...
'' 1974). This has been sufficient to fund actual lighthouses. *
Technological progress Technology is the application of knowledge to reach practical goals in a specifiable and reproducible way. The word ''technology'' may also mean the product of such an endeavor. The use of technology is widely prevalent in medicine, science, ...
can create new public goods. The most simple examples are street lights, which are relatively recent inventions (by historical standards). One person's enjoyment of them does not detract from other persons' enjoyment, and it currently would be prohibitively expensive to charge individuals separately for the amount of light they presumably use. *
Official statistics Official statistics are statistics published by government agencies or other public bodies such as international organizations as a public good. They provide quantitative or qualitative information on all major areas of citizens' lives, such as ...
are another example. The government's ability to collect, process and provide high-quality information to guide decision-making at all levels has been strongly advanced by technological progress. On the other hand, a public good's status may change over time. Technological progress can significantly impact excludability of traditional public goods: encryption allows
broadcasters Broadcaster may refer to: * A presenter of any syndicated media program * A broadcasting organization, one responsible for audio and video content and/or their transmission * A sports commentator on television or radio * Broadcaster, currently kn ...
to sell individual access to their programming. The costs for electronic
road pricing Road pricing (also road user charges) are direct charges levied for the use of roads, including road tolls, distance or time-based fees, congestion charges and charges designed to discourage the use of certain classes of vehicle, fuel sour ...
have fallen dramatically, paving the way for detailed billing based on actual use. Public goods are not restricted to human beings. It is one aspect of the study of cooperation in biology.


Free rider problem

The free rider problem is a primary issue in
collective decision-making Group decision-making (also known as collaborative decision-making or collective decision-making) is a situation faced when individuals collectively make a choice from the alternatives before them. The decision is then no longer attributable to any ...
. An example is that some firms in a particular industry will choose not to participate in a lobby whose purpose is to affect government policies that could benefit the industry, under the assumption that there are enough participants to result in a favourable outcome without them. The free rider problem is also a form of
market failure In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indiv ...
, in which market-like behavior of individual gain-seeking does not produce
economically efficient In microeconomics, economic efficiency, depending on the context, is usually one of the following two related concepts: * Allocative efficiency, Allocative or Pareto efficiency: any changes made to assist one person would harm another. * Productiv ...
results. The production of public goods results in positive
externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either c ...
which are not remunerated. If private organizations do not reap all the benefits of a public good which they have produced, their incentives to produce it voluntarily might be insufficient. Consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the
free rider problem In the social sciences, the free-rider problem is a type of market failure that occurs when those who benefit from resources, public goods (such as public roads or public library), or services of a communal nature do not pay for them or under- ...
, or occasionally, the "easy rider problem". If too many consumers decide to "free-ride", private costs exceed private benefits and the incentive to provide the good or service through the market disappears. The market thus fails to provide a good or service for which there is a need. The free rider problem depends on a conception of the human being as '' homo economicus'': purely rational and also purely selfish—extremely individualistic, considering only those benefits and costs that directly affect him or her. Public goods give such a person an incentive to be a free rider. For example, consider national defence, a standard example of a pure public good. Suppose ''homo economicus'' thinks about exerting some extra effort to defend the nation. The benefits to the individual of this effort would be very low, since the benefits would be distributed among all of the millions of other people in the country. There is also a very high possibility that he or she could get injured or killed during the course of his or her military service. On the other hand, the free rider knows that he or she cannot be excluded from the benefits of national defense, regardless of whether he or she contributes to it. There is also no way that these benefits can be split up and distributed as individual parcels to people. The free rider would not voluntarily exert any extra effort, unless there is some inherent pleasure or material reward for doing so (for example, money paid by the government, as with an all-volunteer army or
mercenaries A mercenary, sometimes Pseudonym, also known as a soldier of fortune or hired gun, is a private individual, particularly a soldier, that joins a military conflict for personal profit, is otherwise an outsider to the conflict, and is not a memb ...
). The free-riding problem is even more complicated than it was thought to be until recently. Any time non-excludability results in failure to pay the true marginal value (often called the "demand revelation problem"), it will also result in failure to generate proper income levels, since households will not give up valuable leisure if they cannot individually increment a good. This implies that, for public goods without strong special interest support, under-provision is likely since cost-benefit analysis is being conducted at the wrong income levels, and all of the un-generated income would have been spent on the public good, apart from general equilibrium considerations. In the case of
information good Information goods are commodities that provide value to consumers as a result of the information it contains and refers to any good or service that can be digitalized. Examples of information goods includes books, journals, computer software, music ...
s, an inventor of a new product may benefit all of society, but hardly anyone is willing to pay for the invention if they can benefit from it for free. In the case of an information good, however, because of its characteristics of non-excludability and also because of almost zero reproduction costs, commoditization is difficult and not always efficient even from a neoclassical economic point of view.


Efficient production levels of public goods

The
Pareto optimal Pareto efficiency or Pareto optimality is a situation where no action or allocation is available that makes one individual better off without making another worse off. The concept is named after Vilfredo Pareto (1848–1923), Italian civil engin ...
provision of a public good in a society occurs when the sum of the marginal valuations of the public good (taken across all individuals) is equal to the marginal cost of providing that public good. These marginal valuations are, formally, marginal rates of substitution relative to some reference private good, and the marginal cost is a marginal rate of transformation that describes how much of that private good it costs to produce an incremental unit of the public good. This contrasts to the Pareto optimality condition of private goods, which equates each consumer's valuation of the private good to its marginal cost of production. For an example, consider a community of just two consumers and the government is considering whether or not to build a public park. One person is prepared to pay up to $200 for its use, while the other is willing to pay up to $100. The total value to the two individuals of having the park is $300. If it can be produced for $225, there is a $75 surplus to maintaining the park, since it provides services that the community values at $300 at a cost of only $225. The classical theory of public goods defines efficiency under idealized conditions of complete information, a situation already acknowledged in Wicksell (1896). Samuelson emphasized that this poses problems for the efficient provision of public goods in practice and the assessment of an efficient Lindahl tax to finance public goods, because individuals have incentives to underreport how much they value public goods. Subsequent work, especially in mechanism design and the theory of
public finance Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achiev ...
developed how valuations and costs could actually be elicited in practical conditions of incomplete information, using devices such as the
Vickrey–Clarke–Groves mechanism In mechanism design, a Vickrey– Clarke–Groves (VCG) mechanism is a generic truthful mechanism for achieving a socially-optimal solution. It is a generalization of a Vickrey–Clarke–Groves auction. A VCG auction performs a specific task: divi ...
. Thus, deeper analysis of problems of public goods motivated much work that is at the heart of modern economic theory.


Local public goods

The basic theory of public goods as discussed above begins with situations where the level of a public good (e.g., quality of the air) is equally experienced by everyone. However, in many important situations of interest, the incidence of benefits and costs is not so simple. For example, when people keep an office clean or monitor a neighborhood for signs of trouble, the benefits of that effort accrue to some people (those in their ''neighborhoods'') more than to others. The overlapping structure of these neighborhoods is often modeled as a
network Network, networking and networked may refer to: Science and technology * Network theory, the study of graphs as a representation of relations between discrete objects * Network science, an academic field that studies complex networks Mathematic ...
. (When neighborhoods are totally separate, i.e., non-overlapping, the standard model is the
Tiebout model The Tiebout model, also known as Tiebout sorting, Tiebout migration, or Tiebout hypothesis, is a positive political theory model first described by economist Charles Tiebout in his article "A Pure Theory of Local Expenditures" (1956). The essence ...
.) An example of locally public good that could help everyone, even ones not from the neighborhood, is a bus. Let's say you are a college student who is visiting their friend who goes to school in another city. You get to benefit from this services just like everyone that resides and goes to school in said city. There is also a correlation of benefit and cost that you are now a part of. You are benefiting by not having to walk to your destination and taking a bus instead. However, others might prefer to walk so they do not become a part of the problem, which is pollution due to gas given out by auto mobiles. Recently, economists have developed the theory of local public goods with overlapping neighborhoods, or ''public goods in networks'': both their efficient provision, and how much can be provided voluntarily in a non-cooperative equilibrium. When it comes to socially efficient provision, networks that are more dense or close-knit in terms of how much people can benefit each other have more scope for improving on an inefficient status quo. On the other hand, voluntary provision is typically below the efficient level, and equilibrium outcomes tend to involve strong specialization, with a few individuals contributing heavily and their neighbors free-riding on those contributions.


Ownership

Economic theorists such as Oliver Hart (1995) have emphasized that ownership matters for investment incentives when contracts are incomplete. The incomplete contracting paradigm has been applied to public goods by
Besley Besley is a surname. People with that name include: * Kirkland Besley (1902–1994), American hospital administrator and college football player * Robert Besley Robert Besley (1794–1876) was an English typographer, creator of Clarendon (typefa ...
and Ghatak (2001). They consider the government and a non-governmental organization (NGO) who can both make investments to provide a public good. Besley and Ghatak argue that the party who has a larger valuation of the public good should be the owner, regardless of whether the government or the NGO has a better investment technology. This result contrasts with the case of private goods studied by Hart (1995), where the party with the better investment technology should be the owner. However, it has been shown that the investment technology may matter also in the public-good case when a party is indispensable or when there are bargaining frictions between the government and the NGO. Halonen-Akatwijuka and Pafilis (2020) have demonstrated that Besley and Ghatak's results are not robust when there is a long-term relationship, such that the parties interact repeatedly. Moreover, Schmitz (2021) has shown that when the parties have private information about their valuations of the public good, then the investment technology can be an important determinant of the optimal ownership structure.


Example of Public Good

* National defense is an example of a public good. If you safeguard the country from invasion, it is in the best interests of the entire nation. * Fire service could be considered a public good. Because fire prevention and fire extinguishing services share the characteristics of public goods. Firstly, it is non-rivalry. Protecting society against fire doesn’t reduce the amount of the good / service available. Secondly, it is non-excusable since you can’t stop anyone ringing up for fire service. * Flood defenses has positive consequences for the entire community, keeping the coastline safe from flooding. It is also an example of public good. * The use of the internet is an example of public good. Once websites are made open, anyone can view them for no charge, without limiting the quantity of information available to others. Individuals can get information for free if they can get their hands on it (which is not always the case). * The lights on the streets is also a public good. If you provide light at night, you will not be able to prevent people from consuming the good. When you walk beneath a street light, you do not limit the amount of light available to others. * The police department is also considered as a public good. It is because that improved security and lower crime will benefit everyone in the community as a result of your efforts to maintain law and order. * Some aspects of cybersecurity, such as threat intelligence and vulnerability information sharing, collective response to cyber-attacks, the integrity of elections, and critical infrastructure protection, have the characteristics of public goods.


Quasi-Public Goods

Generally speaking, these are items that are neither excludable nor rival in nature. Roads are a good illustration of this. Once they have been made available, the vast majority of people can make use of them, such as those who have a driving license. Other than toll roads, there is no charge to use roads so it is non excludable in nature. However, when you utilize a road, the amount of advantage that others can receive is limited to a certain extent, as a result of increasing traffic congestion. Therefore, the utility you get from roads is rival in the sense that your enjoyment of a road can reduce someone else's enjoyment. Education is another example of a quasi-public good. Different degrees of schooling require distinct classifications. While elementary and secondary education are considered meritocracies, higher education is better regarded as a quasi-public utility. In comparison, knowledge is frequently referred to as a global public good(Chattopadhyay, 2012).


See also

*
Anti-rival good “Anti-rival good” is a neologism suggested by Steven Weber. According to his definition, it is the opposite of a rival good. The more people share an anti-rival good, the more utility each person receives. Examples include software and other inf ...
*
Excludability In economics, a good, service or resource are broadly assigned two fundamental characteristics; a degree of excludability and a degree of rivalry. Excludability is defined as the degree to which a good, service or resource can be limited to only ...
* Lindahl tax, a method proposed by Erik Lindahl for financing public goods *
Private-collective model of innovation The term private-collective model of innovation was coined by Eric von Hippel and Georg von Krogh in their 2003 publication in '' Organization Science''. This innovation model represents a combination of the private investment model and the coll ...
, which explains the creation of public goods by private investors *
Public bad A public bad, in economics, is the symmetrical opposite of a public good. Air pollution is the most obvious example since it is non-excludable and non-rival, and negatively affects welfare.For current definitions of public bads see: Charles D. K ...
*
Public trust doctrine The public trust doctrine is the principle that the sovereign holds in trust for public use some resources such as shoreline between the high and low tide lines, regardless of private property ownership. Origins The ancient laws of the Byzanti ...
* Public goods game, a standard of experimental economics *
Public works Public works are a broad category of infrastructure projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community. They include public buildings ( municipal buildings, sc ...
, government-financed constructions * Tragedy of the commons * Tragedy of the anticommons * Rivalry (economics) * Quadratic funding, a mechanism to allocate funding for the production of public goods based on democratic principles


References

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Bibliography

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Further reading

* Acoella, Nicola (2006), ‘''Distributive issues in the provision and use of global public goods''’, in: ‘''Studi economici''’, 88(1): 23–42. * * * Zittrain, Jonathan, '' The Future of the Internet: And How to Stop It''. 2008 * Lessig, Lawrence, '' Code 2.0'', Chapter 7, What Things Regulate


External links


''Public Goods: A Brief Introduction''
by The Linux Information Project (LINFO) *

– analysis from Global Policy Forum
Hardin, Russell, "The Free Rider Problem", The Stanford Encyclopedia of Philosophy (Spring 2013 Edition), Edward N. Zalta (ed.)
{{Authority control Community building Goods (economics) Market failure Public economics Good