Vipul: /* Definition */

2011-12-03T18:05:58Z

Definition

← Older revision		Revision as of 18:05, 3 December 2011
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	Many [[knowledge good]]s are examples of public goods.		Many [[knowledge good]]s are examples of public goods.

			==Context==

			{{further\|[[2 X 2 matrix of rivalry and excludability]]}}

			{{#lst:2 X 2 matrix of rivalry and excludability\|matrix}}

	==Two types of public goods==		==Two types of public goods==

Vipul: Created page with "==Definition== The term '''public good''' is used for a good that is both a defining ingredient::non-rival good and a defining ingredient::non-excludable good, i.e.: * ..."

2011-12-03T16:47:38Z

Created page with "==Definition== The term '''public good''' is used for a good that is both a defining ingredient::non-rival good and a defining ingredient::non-excludable good, i.e.: * ..."

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==Definition==

The term '''public good''' is used for a good that is both a [[defining ingredient::non-rival good]] and a [[defining ingredient::non-excludable good]], i.e.:

* It is a [[non-rival good]]: The use of the good by one party does not diminish its value for another party.
* It is a [[non-excludable good]]: Once the good is produced, it is not possible to exclude people from using the good, and thus it is not possible to force them to pay for the use of the good.

Many [[knowledge good]]s are examples of public goods.

==Two types of public goods==

===Public goods where marginal investments can benefit the production===

These are public goods where small amounts of the good can be produced even for small investments.

For these kinds of public goods, even if a few people contribute to the production of the public good, some amount of that public good gets produced and this good can benefit everybody (since it is non-rival and non-excludable).

===Public goods that require a fixed large investment and smaller investments are no use===

These are public goods that require a huge upfront investment and where smaller quantities of expenditure do not produce any amount of the good that has value.

For these kinds of public goods, if only a few people contribute a small amount, then ''nobody'' benefits because none of the good gets produced.
==Provision of public goods==

===Free rider problem===

{{further|[[free rider problem]]}}

The provision of public goods generally suffers from the free rider problem: although all individuals benefit from public goods, the benefit to the individual is independent of whether the individual contributes toward the production of the public good. Thus, each individual has an incentive to be a ''free rider'': not contribute to the provision of the public good, but enjoy the benefits anyway once others produce it. However, if all (or most) individuals think this way, then no (or very few) public goods get produced.

The qualitative nature of the free rider problem depends on the type of the public good. For public goods that require a fixed large investment, a sufficiently large number of free riders means that the public good does ''not'' get produced at all. For public goods where the marginal benefits of investment exist even at small levels, the public good may be ''under''-produced but some of it would still get produced if there are some people who are not free riders.

===Private provision of public goods===

{{further|[[private provision of public goods]]}}

* Self-interested provision: A public good may be privately provided if the ''private'' benefit to an individual (or organization) of providing the good exceeds the ''private'' cost. Note that the private benefit is likely to be a lot less than the total [[social benefit]] (which adds up the private benefits of ''everybody''). Further, ''even if'' the private benefit to an organization exceeds the private cost, the organization may choose not to provide the public good if it thinks that somebody else will step up to the task.
* Philanthropic provision:

===State provision of public goods===

{{further|[[state provision of public goods]]}}

Here, the government of a state (nation-state, province, etc.) uses money collected through [[tax]]es to provide specific public goods.

Note that just because a good is provided by the government of a state does ''not'' make it a public good. Conversely, not every public good needs to be provided by a government.

Public good - Revision history

Vipul: /* Definition */

Vipul: Created page with "==Definition== The term '''public good''' is used for a good that is both a defining ingredient::non-rival good and a defining ingredient::non-excludable good, i.e.: * ..."