6.5 Public and Private Goods

Two properties define goods

Goods are classified by excludability (can non-payers be kept from using it?) and rivalry (does one person's use reduce availability for others?). These two traits combine to form four categories of goods, each with different market outcomes.

Public goods and the free-rider problem

Public goods are non-excludable and non-rival (e.g., national defense, streetlights). Because people can't be excluded, they have no incentive to pay — the free-rider problem. Private markets underproduce or fail to produce public goods, so government typically provides them, funded through taxes.

Common resources and club goods

Common resources are rival but non-excludable (e.g., fish stocks, clean air), leading to overuse — the tragedy of the commons. Club goods are excludable but non-rival (e.g., cable TV, private parks). Private goods are excludable and rival, efficiently allocated by markets.

Key terms

Excludability

The ability to prevent people who don't pay from using a good.

Rivalry

A characteristic where one person's consumption reduces the amount available to others.

Public good

Non-excludable and non-rival good (e.g., streetlights, national defense); prone to the free-rider problem.

Common resource

Rival but non-excludable good (e.g., fish stocks, clean air); prone to the tragedy of the commons.

Club good

Excludable but non-rival good (e.g., cable TV, private golf course).

Try an AP-style question

A public good is…

1. nonrival and nonexcludable
2. nonrival and excludable
3. rival and nonexcludable
4. rival and excludable