Overview
This chapter explains the distinction between public goods and private goods, examines challenges in providing public goods, and explores the implications for government action and public expenditure.
Public vs. Private Goods
- Public goods are indivisible and provided jointly to all community members, like roads or clean air.
- Private goods are divisible and consumed individually, such as food, cars, or clothing.
- The government typically provides public goods, while markets efficiently provide private goods.
Characteristics of Public Goods
- Public goods are non-excludable (cannot prevent non-payers from using them) and non-rivalrous (one person's use does not reduce availability for others).
- Examples: national defense, justice, scientific discoveries, or public parks.
- The free rider problem occurs because people can benefit without contributing.
Types and Variations of Goods
- Pure public goods: No rivalry and no exclusion; e.g., scientific knowledge.
- Rival or congestible goods: More users decrease utility; e.g., roads during traffic, clean air, hospitals.
- Club goods: Non-rival up to a point but excludable; access is restricted, e.g., private concert, toll roads.
- Common goods: Rival and non-excludable; e.g., fisheries, atmosphere, leading to overuse ("tragedy of the commons").
Provision and Governance of Public Goods
- Provision requires collective action—either voluntary or enforced by rules/government.
- Effective provision needs institutions for coordination, enforcement, and credible commitments.
- Small groups can self-organize; large groups often require formal authority.
Politics and Expansion of Public Goods
- Public goods can be provided by various forms of organization, from families to states.
- The expansion of public expenditure is influenced by economic growth, social demands, and political factors such as democracy and lobbying.
- Over time, public expenditure as a share of GDP has increased, especially in developed democracies.
Measuring and Debating Government Action
- Government action is often measured by public spending as a proportion of GDP.
- Government expansion reflects increased demand for infrastructure and redistributive services.
- Not all goods provided by government are true public goods—careful scrutiny is needed.
Key Terms & Definitions
- Public good — An indivisible good supplied jointly to all potential users.
- Private good — A divisible good that can be used individually.
- Pure public good — A good usable by one without reducing utility for others.
- Rival (congestible) good — A good whose use by one person diminishes utility for others.
- Club good — Excludable public good, usable only by a specific group.
- Commons — Rival, non-excludable, exhaustible resources.
- Network good — Benefits increase as more people use the good.
- Externality — Effect of an action on others' utility, positive or negative.
Action Items / Next Steps
- Review provided examples of public, private, club, and common goods.
- Complete questions on differences and examples of each type of good.
- Search and compare public expenditure data across different countries as suggested in the applications section.