Public good (economics)
Public goods in economics refer to resources or services that provide benefits to all members of a society, characterized by two key features: non-excludability and non-rivalry. Non-excludability means that once a public good is available, individuals cannot be prevented from using it, regardless of whether they contributed to its provision. Non-rivalry indicates that one person's use of the good does not diminish its availability for others. Common examples of public goods include national defense, law enforcement, and public infrastructure such as streetlights.
In contrast, quasi-public goods, like city roads, may face issues of congestion where increased use can affect the experience of others, but they still retain public good characteristics. The concept of public goods addresses challenges in resource allocation that arise in market economies, as the free market often struggles to provide these goods due to the free-rider problem, where individuals benefit without contributing. Government intervention, typically funded by taxation, is often necessary to ensure the maintenance and provision of public goods for the broader community.
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Public good (economics)
Public goods are things that benefit the entirety of a society. They have two primary restrictions: they must be non-rivalrous and non-excludable. This means that people who did not pay into the public good must be able to access it, and that the resource does not become scarcer as people utilize it. Some common examples of public goods include national security, police forces, and streetlights. If a resource becomes more difficult to access as more people utilize it, but otherwise fits the definition of a public good, it is called a quasi-public good. Roads are a common example of a quasi-public good.
Background
Examples of public goods can be traced back to the agricultural revolution. At the time, human populations were beginning to settle different regions. This allowed farmers to produce more food than they needed, allowing them to sell their surplus crops for a profit. These sales helped stimulate local economies and create new markets. However, other groups of people quickly began to prey on these markets. Bands of bandits attacked the farmers, taking their surplus food.
Bandits disrupted the local economies and hurt the farmers. This was bad for the entirety of the community. To help fight this, communities organized into the first true nation-states. Nation- states could provide a static force of armed citizens, who could protect local merchants and farmers. In return, the nation-states demanded taxation. This allowed the state to pay and equip the citizens who helped protect the farmers. Protection from bandits was considered a public good. Many large empires originally served this purpose. When they eventually broke down, smaller gangs or organizations took over protective duties.
The theory of public good was first formalized by the economist Paul Samuelson. Samuelson was the first American to win the Nobel Memorial Prize in Economic Sciences. He was influenced by the historic economic work Value and Capital by John R. Hicks. Samuelson published his own groundbreaking ideas in the 1954 essay “The Pure Theory of Public Expenditure.”
Overview
A public good is something that is indisputably good for a society or group of people. It is also defined by two other factors: non-excludability and non-rivalry. Non-excludability means that once the specific benefit is provided, individuals who have not paid into the system cannot be stopped from benefitting from it. Once accomplished, the benefit goes to all people who want it. Non-rivalry means that one person benefitting from the public good does not reduce the available benefits for other people. The public good cannot be a finite resource that can be used up.
Many of the common benefits associated with living in an organized society are public goods. For example, police forces keep order and stop criminals. If one person calls the police, the rest of the society still benefits from the police. Additionally, if someone who does not pay the taxes that support a local police force moves to an area, he or she will still reap the benefits of the police force keeping order. On a larger scale, national defense is a public good. Keeping the people of a nation safe from invasion is inarguably good for the people of that nation. People who do not participate in the defense of a nation still benefit from it, and that does not make it harder for other people to benefit.
Another common example of a public good is the creation and maintenance of a city’s streetlight network. Ensuring that the city’s roads and walkways are properly lit at all times is beneficial to anyone who intends to travel. People who have not contributed to those goods cannot be stopped from using them, and the resources provided by well-maintained streetlights are not finite.
Many of the other benefits of society tend to be provided by the free market. Free market systems often help stabilize themselves, especially with the assistance of a governmental body. However, these systems normally function on personal incentives. This means that within a free market system, people are expected to act in ways that are beneficial to them. Fulfilling a public good is often something that is not beneficial to the individuals performing the good, so free markets tend to struggle with creating them. They can sometimes solve this problem by directly paying people to perform a public good, using money raised through taxes.
Because it is not possible to force people to participate in the creation of a public good, nor is it possible to stop people from utilizing a public good, public goods sometimes encounter the free-rider problem. Free riders are individuals who utilize the public good without paying for it or contributing to it. In some cases, this can lead to the destruction of the public good, removing its societal benefit. In these cases, the government may regulate the public good by providing tax money for its maintenance.
Things that meet most of the criteria for a public good, but may be used up over time or experience difficulties under heavy use, are called quasi-public goods. One common example of quasi-public goods is city infrastructure. Maintaining a well-engineered network of roads and bridges for a city is beneficial for everyone who lives in that city. Individuals who did not contribute to the creation of that infrastructure cannot be stopped from using it, and in most cases many individuals utilizing the resource does not use it up. However, if an extreme number of individuals are on the roads at one time, they make experience traffic. This makes the resource less helpful to everyone who uses it, but it does not eliminate use of the resource.
Bibliography
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