PUBLIC VS. PRIVATE GOODS

             PUPA 71


 
 
 
 
A CLASSIFICATION OF GOODS
EXCLUDABLE
NON-EXCLUDABLE
RIVAL 
(MC>0)
PRIVATE GOOD 
  • Efficient Market Supply
  • Examples: food, clothes, TVs or other electronics

 
 

 

COMMON POOL RESOURCE
  • Problems: overproduction, underinvestment, overconsumption, or poorly defined property rights
  • Example: Natural Resources
  • Solution: clearly define property rights/ownership of resources, encourage pareto-optimal use through subsidies and taxation policies
NON-RIVAL 
(MC=0)
"TOLL" GOOD
  • Problems: underconsumption or crowding
  • Examples: movie theater, road or bridge, public park
  • Solutions:  prevent crowding with a positive price, institute cheaper price or allow free use during off-peak times 
PUBLIC GOOD
  • Problems: overproduction, underinvestment, overconsumption, and Free-riding
  • Examples: National Defense, Local Mosquito Control Operations
  • Solution: public delivery with mandatory contribution towards provision through taxation 

Rival Goods:  A good whose consumption by one individual limits the consumption or enjoyment of the good by another individual. A non-rival good can be enjoyed by several individuals at a time.  For example, a movie theater, road, or public park can be enjoyed equally by all those who use up until the point at which crowding occurs.  Once too many people are in the same theater, using the same road, or enjoying the park, their enjoyment decreases and the added use by an additional individual becomes costly.  Most non-rival goods are subject to this type of congestion.

Excludable Good:  A good that only the consumer who purchased it may enjoy.  Some goods such as a public park or a road may seem non-excludable.  However, if we can limit access to the road by putting a gate or a toll booth on it, it becomes excludable.  Similarly, if we can charge a users fee for a park or require a license to enter the park, it is excludable.

WARNING:  A publicly provided good is not the same thing as a "public good."  Public organizations and governments delivery many goods which are private goods.  Thus, it is not uncommon to see public organizations and private organizations producing similar goods such as education and medical care.