DATA LINK UNIVERSITY COLLEGE

PUBLIC FINANCE LECTURE FOUR LEVEL 400

Public Goods

Definition

Public goods are a category of goods and services that benefit members of society in general.
Public goods are goods provided by governments. Government-financed items such as roads,
bridges, lighthouses and streetlights are public goods. Private citizens cannot provide them
voluntarily because there is no profit incentive to provide them.

A bridge and a bowl of fried rice differ significantly from each other in this way. With a bowl
of fried rice, if I consume it then you cannot have it. Two people cannot consume fried rice
simultaneously. One person can use a public good, without reducing the amount available for
others to use. This is known as shared consumption.

With a bridge, which is a public good, my use of it does not preclude you from using it. It is
impossible to prevent another one from consuming or using it. Alternatively, take national
defence or security. Your consumption of national security benefits does not preclude me
from enjoying the same benefits.

An example of a public good that has this characteristic is a spraying program to kill
mosquitoes. The spraying reduces the number of mosquitoes for all of the people who live in
an area, not just for one person or family. The opposite occurs in the consumption of private
goods. When one person consumes a private good, other people cannot use the product. This
is known as rival consumption. A good example of rival consumption is a piece of cake. If
someone else eats the piece of cake, you cannot.

A pure public good has the following characteristics

• Once it is provided the additional resource cost for another person consuming it is
zero. The consumption is non-rival
• To prevent anyone from consuming the good is either very expensive or impossible.
The consumption is non-excludable.

These are the two key aspects that public goods differ from private goods.

Considerations about the Definition

• Everyone consumes the same amount or quantity of a public good, yet it need not
be valued equally by all.

An example

Cleaning the dormitory and bathrooms for college students in a hostel, this had a
public good characteristic everyone enjoys a clean bathroom and it difficult to exclude
some students from the benefits. Some students care less about cleanliness than
others.

1
 Some people differ about the value of a public good and think its value is either
positive or negative

• Classification as a public good is not absolute. The classification depends upon

the state of market conditions and the state of technology.

Think of a lighthouse. One ship can take advantage of it without impinging on another
ship’s ability to do the same. No particular ship can be excluded from taking
advantage of the lighthouse. The lighthouse is a pure public good. But suppose there
is a device to jam other ships from using the lighthouse, then the non-excludable
criterion is no longer satisfied, then the lighthouse is no longer a public good.

A scenic view is a pure public good when few people are involved in its use. More
sightseers the area becomes congested. The same ‘quantity’ is being ‘consumed’ by
each person, but its quality decreases with the increase in the number of people. The
non-rivalness criterion is no longer being satisfied.

• A commodity may not satisfy both parts of the definition. It can satisfy one part
but not the other. Non-excludability and non-rivalness do not have to go
together.

Use of streets in the city centre during rush hour. Non-excludability holds because it
is not possible to set up toll booths to monitor the traffic. But rivalness holds.

Many people can enjoy a beachfront without diminishing the pleasure of others.
Individuals do not rival each other but exclusion is possible if there are only a few
access points. The classification depends upon state of technology. With road
congestion use radio waves to track passing cars and charge them. Using technology
to charge cars on congested streets will make the streets excludable.

• Some things are not considered as commodities but have the characteristics of
public goods

Honesty is an example. If each citizen is honest in commercial transactions everybody

in the society benefits due to reduction in the cost of doing business. The cost
reductions satisfy the non-excludability and non-rivalness criteria. If income is
distributed ‘fairly’ each person gains. Income distribution is non-excludability and
non-rivalness and therefore a public good.

Terminology, and types of public goods

2
 Excludable Non-excludable

Private goods Common goods / (Common-pool

Rivalrous food, clothing, toys, resources)
furniture, cars fish, hunting game, water, air

Public goods
Non- Club goods
rivalrous national defense, free-to-air
cable television
television
Private and public goods

Paul A. Samuelson is usually credited as the first economist to develop the theory of public
goods. In his classic 1954 paper The Pure Theory of Public Expenditure,[2] he defined a
public good, or as he called it in the paper a "collective consumption good", as follows:

...[goods] which all enjoy in common in the sense that each individual's consumption of such a good
leads to no subtractions from any other individual's consumption of that good...

This is the property that has become known as Non-rivalness. In addition a pure public good
exhibits a second property called Non-excludability: that is, it is impossible to exclude any
individuals from consuming the good.

The opposite of a public good is a private good, which does not possess these properties. A
loaf of bread, for example, is a private good: its owner can exclude others from using it, and
once it has been consumed, it cannot be used again.

A good which is rivalrous but non-excludable is sometimes called a common pool resource.
Such goods raise similar issues to public goods: the mirror to the public goods problem for
this case is sometimes called the tragedy of the commons. For example, it is so difficult to
enforce deep sea fishing that the world's fish stocks can be seen as a non-excludable resource,
but one which is finite and diminishing.

The definition of non-excludability states that it is impossible to exclude individuals from

consumption. Technology now allows radio or TV broadcasts to be encrypted such that
persons without a special decoder are excluded from the broadcast; however, an unencrypted
broadcast is still non-excludable.

Many forms of creative works have characteristics of public goods. For example, a poem can
be read by many people without reducing the consumption of that good by others; in this
sense, it is non-rivalrous. Similarly, the information in most patents can be used by any party
without reducing consumption of that good by others. Creative works may be excludable in
some circumstances, however: the individual who wrote the poem may decline to share it
with others by not publishing it. Copyrights and patents both encourage and inhibit the
creation of such non-rival goods by providing temporary monopolies, or, in the terminology
of public goods, providing a legal mechanism to enforce excludability for a limited period of
time. For public goods, the "lost revenue" of the producer of the good is not part of the

3
definition: a public good is a good whose consumption does not reduce any other's
consumption of that good.