The Conceptual Overlap Between Public Goods, Externalities And Merit Goods

Abstract

In a given situation, any good has the following characteristics: rivalry, exclusion, space, and time. The last two are the physical variables of position in space and time. Rivalry may be seen as an intrinsic physical quality of any good and appears as a binomial variable with the categories yes and no, denominated as rival or non-rival. Exclusion reflects the institutional handling of the allocation of a good and appears as a continuous variable that measures the resource cost for enforcing property norms. With these two characteristics, most goods may be classified from pure private goods to pure public goods, with an infinite number of intermediary cases. Space is associated with local public goods. Externalities may be considered as a joint production of a rival and non-rival good that results from a market transaction. Finally, merit goods may be seen as a form of externality.