Public goods and Common resources

• "The best things in life are free,": 'the old song tells us'
• Rivers, mountains, beaches, lakes, and oceans are nature's bounty, available to all
• Playgrounds, parks, and parades are often provided by governments, and people usually don't have to pay anything to enjoy them
• Goods without prices


  Don't easily fit into the kind of analysis we've practiced so far, which focuses mainly on items allocated through markets where buyers pay and sellers are paid
• Without prices, private markets on their own cannot ensure that such goods are made available and used correctly for the maximum benefit of society as a whole
• Government policy can often fix the market failure and increase economic well-being
• Excludability


  If people can be prevented from using a good, it is excludable. If it is impossible to prevent people from using the good, it is not excludable.
• Rivalry in consumption


  If one person's use of a unit of a good reduces another person's ability to use it, the good is rival in consumption. If one person's use does not diminish another person's use, the good is not rival in consumption.
• Private goods


  Goods that are both excludable and rival in consumption
• Private goods


  • Ice-cream cones, clothing, congested toll roads
• Public goods


  Goods that are neither excludable nor rival in consumption
• Public goods


  • Tornado siren, national defense
• Common resources


  Goods that are rival in consumption but not excludable
• Common resources


  • Fish in the ocean, the environment
• Club goods


  Goods that are excludable but not rival in consumption
• Club goods


  • Satellite TV, fire protection, uncongested toll roads
• Whether goods are excludable or rival in consumption is often a matter of degree
• Because public goods are not excludable, the free-rider problem often prevents the private market from supplying them
• The government can remedy the free-rider problem by providing public goods and paying for them with tax revenue
• National defense


  • A classic example of a public good, as it is impossible to prevent a person from enjoying the benefit of national defense, and one person's enjoyment does not reduce the benefit to anyone else
• In 2020, the U.S. federal government spent a total of $886 billion on national defense, or $2,682 per person
• Basic research


  • General knowledge is a public good, as it is not excludable and not rival in consumption. Profit-seeking firms have little incentive to spend on basic research, so the government subsidizes it to provide the public good of general knowledge.
• Determining the appropriate level of government support for basic research is difficult because the benefits are hard to measure, and members of Congress don't have the expertise to judge what lines of research are likely to produce the largest benefits
• Profit-seeking firms


  Spend a lot on research to develop products they can patent and sell, but most don't spend much on basic research
• Incentive of profit-seeking firms


  To free ride on the general knowledge created by others
• In the absence of any public policy, society would devote too few resources to creating knowledge
• Government


  Tries to provide the public good of general knowledge in various ways
• Government agencies that subsidize basic research


  • National Institutes of Health
  • National Science Foundation
• Determining the appropriate level of government support for basic research is difficult because the benefits are hard to measure, and the members of Congress who appropriate funds usually don't have the expertise necessary to judge what lines of research are likely to produce the largest benefits
• While basic research is surely a public good, the public sector often won't allocate the right amount of funds for the right kinds of research
• TANF (Temporary Assistance for Needy Families)


  Provides temporary income support for poor families with children
• SNAP (Supplemental Nutrition Assistance Program)


  Subsidizes food purchases for low-income households
• Medicaid


  Provides medical care for low-income households
• EITC (Earned Income Tax Credit)


  Provides tax rebates for those who work at low-wage jobs
• These and other antipoverty programs are financed by taxes on people with higher incomes
• DANA FRADON/THE NEW YORKER COLLECTION/THE CARTOON BANK: '"I like the concept if we can do it with no new taxes."'
• Advocates of antipoverty programs sometimes claim that fighting poverty is a public good
• Even if everyone prefers living in a society without poverty, fighting poverty is not a "good" that private actions will adequately provide
• Because of the free-rider problem, fighting poverty through private charity will probably not be sufficient
• Government action can solve the free-rider problem by taxing the wealthy to raise the living standards of the poor, which can potentially make everyone better off