Economics for Advocates: Public Goods

cat public good

Economists define public goods has having two characteristics

  1. Non-rivalrous in consumption
  2. Non-excludable

Being non-rivalrous means that more than one person can enjoy the good at the same time. For example, my enjoyment of a park is (under usual circumstances) not lessened by your enjoyment of the same park. By contrast, a rivalrous good might be food…if one of us has eaten the last slice of pizza, the other person can’t also enjoy that same slice of pizza.

Excludable means that it’s relatively easy to charge for the good. So, while a public park may not be rivalrous, it is definitely excludable (one can charge admission) and therefore does not meet the economic definition of a public good.

Cat common good

So, why do economists care about public goods? Well, public goods produce what is known as a free-rider problem. If it’s hard to exclude someone from the benefits of a good, they have very little incentive to pay for it. But since this applies to everyone, we could wind up in a situation where there are fewer public goods than each of us would like. Economists believe that the only solution to this problem is some form of coercion (for example, taxation).

The reality is a little more complicated, since high levels of social trust can also solve the problem of free riders. If I trust that you are going to pay your fair share, then I’m more likely to also be willing to pay my fair share, rather than free ride. Even in this case though, there will need to be some sort of organization that will gather together the resources and then produce the good.

The real reason advocates should know about public goods is because they’re one of the few universally accepted reasons to have government. Even if you were a rational, self-interested, utility maximizing homo economicus (i.e. you make all the decisions economic theory assumes), you would still want to have public provision of public goods. In fact, you’d probably be even more intent on government coercion being involved in producing public goods, because, as homo economicus, you have no reason to trust others.

So what are the public goods? The classic example is defense (it’s nonrivalrous and nonexcludable; I am not suggesting that our current levels of defense spending are in anyway either good or justified by economic theory), but there are others. Some have argued that the overall income distribution within a society is a public good.  Your feelings of fulfillment from living in an equal (or unequal) society don’t take away from my feelings about it, and it’s tough to exclude someone from having a feeling about the income distribution in society.

The environment is a public good. While you might be able to exclude people from particular parks, in general having a nice planet to live on is something that is both nonrivalrous and nonexcludable. Knowledge is also a public good (again, certain books or journal articles cost money, but knowledge, considered generally, is a public good).

What else? Feel free to list other public goods in the comments.

Note: Cat pictures are from econlolcats





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