Collective (Public) Goods

Abstract

Abstract In economics, public or collective goods are contrasted with private goods. The enjoyment of a private good can be restricted to those who pay for it, and the consumption of a private good by one person makes it unavailable to anyone else. Markets “work” for private goods, where individuals make clear decisions about cost/benefit tradeoffs and prices are the consequences of the forces of supply and demand. By contrast, public (collective) goods are nonexcludable—shared by everybody, whether they helped pay for the good or not—and nonrival—in that one person's “enjoyment” of the good does not affect another's. People who share in a public good without paying for it are often called “free riders.” Because people can share in a public good if it is paid for by others, the usual assumptions of the market fail, and economists and social scientists generally argue that public goods need to be provided through taxation or other collective means. Public goods are an instance of the more general matter of externalities, in which one person's actions or choices affect the costs or benefits to other people who did not make the choice. Within economics, there has been a great deal of elaboration of these ideas. Some goods are nonrival but excludable (e.g., satellite television), others are nonexcludable but rival (e.g., environmental resources); both excludability and rival‐ness are continua rather than dichotomies. Public or collective goods vary greatly in important ways that affect the social dynamics of their provision, including their lumpiness and the linearity or nonlinearity of their production functions. Moreover, the same “good” (like clean air or a bridge) can be provided in different ways that have different production functions relating contributions to benefits. Introductory overviews of these issues may be found in the cited references.