Public Goods and the Public Sector

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Without government provision of grade school education, we may expect very low attendance rates. The reason for this is many parents will have an incentive to spend the money they have from lower property taxes on their own consumption, not on their kids'. Further, it is unlikely that a child could take out a loan for his or her own education.

This is just one argument for government provision of public goods. Air quality is also a public good that is under provided in a private market. There are a number of potential government responses to poor air quality listed as Pollution Control Methods. Back to Public Goods. There is no automatic connection between public goods and the public sector i.

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However, it is very often the case that public goods are supplied by the public sector, or with some sort of assistance from it, and in capitalist countries private goods are generally supplied by the private sector. Public goods result in what economists call market failure. Market failure is the situation in which a free market economy does not produce results that are efficient for the economy a whole 2.

What are public goods?

A free market, also referred to as the market mechanism , is the somewhat idealized situation in which businesses are allowed to compete only on the basis of the prices and quality of their products, including services associated with those products. There is no interference in this competition from non-market activities such as forcing competitors out of business through collusion with suppliers or customers, threats of costly lawsuits, violence, bribing government officials to pass or enforce legislation unfavorable to competitors, etc.

Other types of market failure include externalities and natural monopolies. Market failure distorts the economy in the sense that it results in different patterns of output, prices and consumption than would occur under free competition. For example, in a free market economy and without corrective action, public goods are likely to be produced and consumed in substantially less quantities than if they were private goods. Examples of public goods include mathematics, algorithms , melodies, cooking recipes, radio and television broadcasts, languages both human and programming , computer software , stories, web sites, national defense, clean air, the light from lighthouses and uncongested roads.

Examples of private goods include airplanes, apples, books, computers, fingernail polish, flashlights, gold, guns, houses, olive oil, pianos, sheep, radios and shirts.

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It can be seen that public goods tend to be intangible items, that is, things which are difficult to grasp with the hands, and that many of them fall into the category of information or knowledge. Very often both types of goods work in tandem or are symbiotic; for example, a piano, which is a a private good, can be used to play a melody, which is a public good, the methods for creating both a piano and a melody are public goods, and a specific performance of the melody on the piano is a private good 3 but a radio or television broadcast of that performance is a public good.

Another example is computer hardware and software. The hardware i. But the software i. Some products may begin to lose some of their characteristic of a public good as a result of negative externalities that occur when consumption rises beyond a certain level. An externality is a cost or benefit that results from an individual or group engaged in an activity to other individuals or groups.

Public Goods and Private Preferences: Are They Reconcilable?

Examples of negative externalities include congestion e. An example of a positive externality is pollination of farmers' crops by bees kept by a beekeeper. Another important feature of public goods is that they often lack excludability. That is, once the good is produced, it is difficult for the producer to stop people from using it who do not pay for it.

This is also referred to as the free rider problem. One reason for the lack of excludability is that some public goods are just ubiquitously available, at least within a region or through the use of a certain technology, and thus anybody can use them without even receiving them from others. Examples include sunlight, clean air and radio broadcasting.

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Another reason is that, because, by definition, anyone can consume as much of a public good as desired without reducing the amount available for others, then any person who purchased, or otherwise obtained, the good or use of it could let others use it, either intentionally or unintentionally, without reducing their own consumption, and they, in turn, could let still others use it, etc.

Examples include tunes for humming and recipes for baking cakes.

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The lack of excludability means that, in contrast to private goods, businesses cannot sell or charge for each unit of a public good that is consumed. Thus, there is less profit incentive to produce public goods than to produce private goods.

If a public good is just as useful to society as a comparable private good, then it can be said that the public good is underproduced and that this is inefficient for the society as a whole. Of course, public goods tend to be very different from private goods, and thus it is not easy to find comparable goods to use to measure the extent of underproduction.

Fortunately, however, there are often other motives for producing public goods other than just the profit motive.

Public good definition by The Linux Information Project

Although these motives also exist for the production of some private goods, their effects can be vastly greater in the case of public goods because of the ability of such goods to be consumed in unlimited quantities. Some definitions include the lack of excludability as a necessary characteristic of a public good. However, although typical, lack of excludability is not only not necessary, but also its inclusion merely confuses the situation.

Businesses devote much effort to attempting to make public goods excludable, because it can allow them to charge each user and it can thus be very profitable. However, such goods are still intrinsically public goods because anyone could use as much as desired were this artificial constraint removed 6. Moreover, the excludability of a public good can change over time due to technological advances and governmental action without changes in the underlying nature of the good.

For example, the development of low cost encryption and descrambling equipment allows broadcasters to restrict access to their programming that was formerly free, and improved copy protection techniques could make digital media more excludable. Also, the costs for electronic road pricing have fallen dramatically, paving the way for detailed billing based on actual use 7.