Public Goods

Introduction

Did you know that there are public goods that are not owned by the state? In economics we call “public goods” a class of goods that meet two characteristics that differentiate them from private goods: they are non-rival and non-excludable.

Their characteristics

It is logical that you have never thought about the particularities of the goods and services that you consume in your daily life, or that even without consuming, are available for purchase in the market.

There are two such issues that are relevant to a full understanding of the definition of public goods.

On the one hand, a truism. To consume any of these goods, we must pay a sum of money in exchange. Those who do not pay are excluded from their consumption.

On the other hand, something simple to understand: each packet of noodles that I take is a packet that others cannot take. Even when a company produces hundreds of thousands of packages and they are all available for purchase, looking at it from the specificity, the particular package that I take is a package that no one else can take.

But there are certain goods that do not meet these characteristics.

We call “non-excludable” the impossibility of excluding from the consumption of a good or service those who do not pay for it.

We call “non-rivalry”: the possibility of a good or service to be consumed by several people without its use by one individual harming the rest.

Some examples

Non-rivalry:

The exponential growth of virtuality and social networks have brought many, many new examples to understand the concept of non-rivalry. Thirty years ago a typical example in the manuals was “a fireworks show”. And of course, one person watching a fireworks show does not conspire in the least with another, others, or many others enjoying the same show. Now we could add some more modern ones: a lecture delivered virtually, for example, or social networks in general, are non-rivalrous goods. That someone uses it does not infringe on someone else doing it, and it can even be the other way around.

Non-exclusive:

Would you put a lightning rod in the garden of your house? Would you assemble the power line infrastructure to illuminate your neighborhood and the streets where you usually walk at night? Chances are, if you did, you wouldn't be the only one favored, would you? Anyone who walks those streets at night can enjoy the privilege of light (even without paying), and in the event of a thunderstorm will be safe. These are two non-exclusive goods.

Not:

There can also be non-excludable rival goods and the other way around.

Rival and exclusive: sneakers in a mall.

Non-rival and exclusive: wide highway with tolls.

Rival, non-excludable: fishing in the ocean.

Non-rival and non-excludable (public goods): Military, Security, street lighting, basic research.

Why do they matter for public policy?

Public goods are, by definition, a market failure. This means that supply and demand mechanisms are not sufficient to guarantee the efficient production of this type of goods. And if the market does not produce them... to guarantee that a country has national defense, street lighting, roads, or basic technological research and development, the State can play an essential role.