Public goods definition
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.
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.
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