Public Goods in Economics. Overview and Explanations

A public good is any type of good that is both nonrivalrous and non-excludable. What nonrivalrous means is that the marginal cost of providing this good to one extra person would be zero. Let's take national defense as an example. Let's say the military of Spain, so let's say you're thinking of moving to Spain, so if you move to Spain what is going to be the marginal cost of Spain's national defense? Well, it's gonna be zero. If you move to Spain tomorrow it's not like the Spanish government's gonna say "We need to get some more military as this person's just moved here."

So really the marginal cost of national defense is zero, whether one extra person comes or whatever it's still going to be the same cost and so we call that nonrivalrous. Now something that would be nonrivalrous for example if you think of a slice of pizza if I eat a slice of pizza that means you cannot eat that slice of pizza because I just ate it. So it's nonrivalrous.

National Defense or things like a streetlight for example if we're thinking about a neighborhood, not at the national level but just a local community level, so if we provide a streetlight on the street and any number of people can use that streetlight they can walk under that streetlight at night if one extra person moves in the neighborhood and occasionally walks under that streetlight or something like that there's no marginal cost, it doesn't cost any more. So it's nonrivalrous.

Now the second characteristic of a public good is that it would be non-excludable and that basically means that you cannot prevent or force anybody so that they can't benefit from that good, that they can't enjoy the good. So again let's go back to our first example that if you move to France, they can't say "You know what, if you aren't willing to pay for national defense then you're not going to be able to benefit from national defense." It doesn't make any sense because if France were to get attacked the military is going to defend the country regardless of whether this extra person was willing to pay for that or not. 

Think about the streetlight, so if you put in that streetlight and then someone moves into the neighborhood there's no way that you can prevent that one person from benefiting from that streetlight. It's also another example of a public good would be clean air. So if you think about clean air let's say there was some invention you came up with that would allow you to clean the air for your neighborhood and provide clean air. Now clean air is something that, think about it it's nonrivalrous. So once you've actually provided the clean air with your new invention what's the marginal cost of an additional person in enjoying that clean air? Well, zero. It costs them nothing any number of people in that neighborhood can enjoy the clean air once you've done that and then it's also not excludable. 

You can't prevent somebody in that neighborhood from breathing in that clean air. So you deserve clean air itself as is a public good. Now there's an issue with public goods is that they tend to be supplied and the reason that they're under-supplied or not supplied at all in some cases is because of something known as the free-rider problem. The free-rider problem is basically that somebody is saying "If this good is just going to be prevented anyway and there's no way that you can exclude me from enjoying it then why should I pay? Why pay for something that somebody else is just going to provide and there's really no way that you can prevent me from enjoying the benefits of street light or of clean air or of national defense. So why should I pay for that what incentive do I have to pay for that." and so there are a couple different solutions but basically this is kind of provides a rationale for the government to get involved. So one solution would be for the government to come in and say "We're going to provide this public good our selves and then we're going to tax people to pay for it or we're going to we're gonna charge user fees or something and then we can ensure that the public good is provided."

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