Public good

Public Good
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Diagram illustrating the characteristics of a public good
Field	Economics, Public Policy
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Description
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A public good is a concept in economics and public policy that refers to a good that is both non-excludable and non-rivalrous. This means that individuals cannot be effectively excluded from use, and use by one individual does not reduce availability to others. Public goods are typically provided by the government or a collective group because they would be underprovided in a free market due to their characteristics.

Characteristics

Public goods have two main characteristics:

• Non-excludability: It is not possible to prevent people from using the good. For example, national defense is a public good because it protects all citizens regardless of whether they contribute to its funding.

• Non-rivalrousness: One person's use of the good does not diminish the ability of others to use it. For instance, a lighthouse provides navigation aid to all ships without reducing its effectiveness for any single ship.

Examples

Common examples of public goods include:

• National Defense: Protects all citizens and cannot exclude anyone from its benefits.
• Public Parks: Open to all and one person's enjoyment does not significantly reduce the enjoyment of others.
• Street Lighting: Provides illumination to all passersby without diminishing its utility.

Provision of Public Goods

Due to their non-excludable and non-rivalrous nature, public goods are often subject to the "free rider problem", where individuals have little incentive to pay for the good because they can benefit without paying. This often leads to under-provision in a free market. As a result, governments typically step in to provide public goods through taxation and public spending.

Economic Theories

Several economic theories address the provision and funding of public goods:

• Samuelson Condition: Named after economist Paul Samuelson, this condition states that the efficient provision of a public good occurs when the sum of the marginal rates of substitution between the public good and a private good equals the marginal cost of providing the public good.

• Lindahl Equilibrium: A theoretical state where individuals pay for public goods according to their marginal benefit, leading to an efficient allocation of resources.

Challenges

Providing public goods poses several challenges:

• Determining the Optimal Level: It is difficult to measure the exact demand for public goods since individuals may understate their preferences to avoid paying.

• Funding: Public goods require funding through taxation, which can be politically contentious.

Also see

• Free rider problem
• Collective action
• Externality
• Public choice theory