Public Goods - Public Choice Economics Study Guide

This is Section 1 of Mr. Stolyarov's free Public Choice Economics Study Guide. See all sections here.

Question 1: What are the three defining characteristics of public goods?

Answer 1:

1) Public goods are non-rival in consumption. If one person has access to the good, this does not decrease how much access anyone else has to it.

2) Everyone who has access to a public good gets the same amount of the good.

3) It is difficult to exclude people from accessing the public good.

Question 2: According to many economists, what is the main problem with market provision of public goods?

Answer 2: Public goods are subject to the free-rider problem. People are likely to misreveal their preferences for the public goods, alleging that they do not want them when in fact they would gladly take advantage of the goods if they are provided and paid for by someone else. These people free-ride off the efforts of others in providing the public good.

It is often the case with a public good that the marginal cost of providing the good to another person is zero, even if the person did not contribute at all to paying for the good. So excluding that person from enjoying the public good would not be a Pareto-optimal state, because that person would be able to benefit from the good at no cost to anyone else. But if someone who does not pay for the public good is not excluded, then there would exist little incentive (aside from benevolence or personal pleasure) for anyone to pay the fixed cost of initially providing the good. Thus (according to the conventional argument) the public good is likely to be underprovided on a free market.

Question 3: Which economist introduced the concept of public goods?

Answer 3: Eric Lindahl introduced the concept of public goods in 1919.

Question 4: Give three examples of public goods.