Public Goods

• Goods like flood defenses, road signs, streetlights, roads, beaches, traffic lights, lighthouses, and military defense are provided by the government and not through the market mechanism
• Pure public goods


  Have two fundamental characteristics: non-excludable and non-rival
• Non-excludable


  No price can be charged for a public good that excludes others that haven't paid
• Reasons why no price can be charged for a public good

  • The benefits of consuming the good cannot be confined just to the individual who's paid for it
  • There might not be a cost-efficient way of pricing
• Non-rival


  The quantity available of the good does not diminish upon consumption
• Examples of public goods

  • Streetlights
  • Beaches
• The issue with public goods is the free-rider problem, where individuals have the incentive not to contribute anything at all to the provision of the public good because they can free-ride off others' contributions
• If everyone acts this way, no one will pay towards the provision of public goods, leading to a complete market failure and a missing market
• Quasi-public good


  A public good that sometimes shows the pure characteristics of a public good (non-excludable and non-rival), but sometimes shows the characteristics of a private good (excludable or rival)
• Examples of quasi-public goods


  • Roads
  • Beaches
• How roads can be excludable


  Through toll roads or electronic road pricing
• How roads can be rival

  During peak times or congestion, where road space diminishes upon consumption
• How beaches can be excludable

  If a hotel owns a beach and only provides access to those who have paid to use the hotel
• How beaches can be rival

  During peak times, congestion, or summer holiday periods, where one person using the beach might reduce the availability to others
• Technology can help find more cost-effective ways to price public goods, potentially making them private goods instead