1.8.3a Public goods and quasi-public goods

Public Goods Are Non-Rival and Non-Excludable, so the Market Fails to Provide Them

1. A public good has two features: non-rivalry and non-excludability.
2. Non-rivalry means one person's use does not reduce what is left for others.
3. Non-excludability means people cannot be stopped from consuming it.

Public Goods Range From Pure to Quasi-Public

1. Pure public goods
   1. Fully non-rival and non-excludable, such as national defence.
2. Quasi-public goods
   1. Only partly non-rival or excludable, such as roads or beaches.
3. A private good, by contrast, is both rival and excludable.

Technological Change Can Turn a Public Good Excludable

1. New technology can make it easier to exclude non-payers, for example through metering or digital access.
2. This can turn a good the state once provided into one markets can supply.
   1. Television broadcasting, for example, is now excludable through encryption and subscription.
3. The public good nature of a good is therefore not fixed.

Pure Public Goods Need State Provision; Quasi-Public Goods May Not

1. The free-rider problem does block private provision of pure public goods.
2. But technology can make some goods excludable, shrinking the problem.
3. On balance, pure public goods need state provision, while quasi-public goods may not.

The Missing Market Prevents Any Price From Forming

1. Because non-payers cannot be excluded, no one has an incentive to reveal how much they would truly pay for the good.
2. Without a genuine willingness-to-pay signal, firms cannot estimate demand or set a viable price.
3. The result is not simply under-provision but a missing market, since profit-seeking firms supply none of the good at all.
4. Governments therefore use methods such as cost-benefit analysis to estimate the value of provision and fund it from general taxation.

Test Every Good Against Non-Rivalry and Non-Excludability

1.8.3b The free-rider problem and the commons

The Free-Rider Problem Stops Markets Providing Public Goods

1. The free-rider problem arises when people can enjoy a good without paying for it.
2. Because non-payers cannot be excluded, each person has an incentive to let others pay.
3. Profit-seeking firms cannot then cover their costs, so the good is under-provided or missing.

Missing Property Rights Cause the Tragedy of the Commons

1. Externalities often arise because property rights are absent or poorly defined.
2. When no one owns a resource, no one bears the full cost of using it.
3. The result is over-use, known as the tragedy of the commons.

Shared Costs and Private Gains Drive Over-Use of the Commons

1. Each user gains the full private benefit of taking a little more.
2. The cost is shared across everyone, so each user ignores most of it.
3. Everyone follows the same logic, and the resource is depleted.

Property Rights Help but Rarely Solve the Global Commons

1. Assigning property rights can make users bear the true cost of their actions.
2. But rights are hard to define for the air, the oceans or global fisheries.
3. Enforcement across borders is often weak or absent.
4. On balance, clearer property rights help, but they rarely solve the global commons on their own.

A Numerical Example Shows Why Shared Costs Cause Over-Use

1. Suppose ten trawlers share an open-access fishing ground with no ownership rights.
2. Catching one more tonne of fish earns a trawler the full private benefit, say £2,000\pounds 2{,}000£2,000.
3. That extra tonne also depletes breeding stock, cutting future total catches by £1,000\pounds 1{,}000£1,000 in value, a cost shared equally across all ten trawlers.
4. Each trawler bears only $\frac{1}{10}$ of that cost, around £100\pounds 100£100, so catching the extra tonne still looks worthwhile privately even though the true cost is spread across everyone.
5. Because every trawler reasons the same way, the fishing ground is over-exploited until stocks collapse, which is the tragedy of the commons expressed in numbers.

Explain the Missing Property Right, Then the Over-Use It Causes