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3.3 Public Goods

So far we have only looked at private goods. A private good is one that must be purchased in order to be consumed and the consumption of it by one individual prevents another from being able to consume it. Private goods are rivalrous and excludable.
Public goods do not have these characteristics. We have two types of public goods. They are pure public goods and quasi-public goods. Pure public goods have the following characteristics:

• Public goods are non rivalrous. Suppose now I walked down the street at night and there were streetlights lighting my way, my consumption of the streetlights does not prevent other people from benefitting from the streetlights. They too can walk down the same stretch of street and receive the same benefit. This is known as non-rivalry consumption of the good. These goods have a large external benefit relative to the private benefit making then socially desirable, but at the same time being unprofitable.
• Public goods are also non-excludable. You cannot prevent someone from enjoying the benefit of consumption – this is known as the free rider problem. Suppose there was a river running by my house and my neighbour’s  house, and I choose to dredge the river to prevent flooding, there is no way that I can prevent my neighbour from receiving the benefit of a lower flood risk caused by the dredged river. My neighbour is able free ride my investment in flood protection.
• A third characteristic is non-rejectable. You cannot reject a public good. For example, nuclear defence systems. Everyone will receive the benefit from this protection whether you want it or not.

Examples of pure public goods include national defence, public water supplies, flood control systems, streetlights and lighthouses. When a good has these 3 characteristics the market will simply not provide them, resulting in a missing market. Therefore we have a complete market failure. The way to overcome this market failure is for the government to intervene into the market and provide the good or pay another firm to produce the good. The government must decide what level of production is appropriate for society, which is done by estimating the social benefit. Many public goods are free at the point of use and paid for out of general taxation. State provision will lead to an increase in the welfare of society (providing that there is a social benefit). Also, as the government is providing the good, presumably for the whole nation or a considerable part of the population, they may be able to benefit from economies of scale.

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Quasi-Public Goods
A quasi-public good has some but not all of the characteristics of a public good. They also have some characteristics of private good.

• Semi-non-rival. Such as parks, beaches and Wi-Fi. The more people that use these facilities the less is available to others. Beaches and parks start to become crowded and Wi-Fi networks become slow if too many people are connected.
• Semi-non-excludable. If you wanted to you could choose to exclude users who haven’t paid. Such as having fencing around parks and an entrance where you pay, toll roads and accounts for Wi-Fi users.

It needs to be noted that not all of public spending is spent on public goods. Governments also choose to spend money on merit goods such as health care and education.