Public Goods
Categories: Ethics/Morals, Tax
So what's a public...bad? The bathrooms at the Y?
Public goods are things that anyone is allowed to use, and using them doesn’t reduce the usability for others.
One of the last great public goods, public libraries, was suggested by an economist to be replaced by Amazon bookstores in a Forbes article, which was then taken down. Why? Twitter users explained to the out-of-touch economist all of the economic benefits that come from public libraries that would be lost if they were replaced with Amazon bookstores.
Think: free internet for school kids who don’t have it at home for homework (and the economist pointed out, rightly, that for the cost savings in selling the real estate of the library along with the new taxes the condos would bring in, the internet access for every single citizen of the city could be covered 10x over), free books for children and adults of all ages (same deal), after-school programs (same deal), literacy programs (same deal), inmate re-entry programs that teach computer skills (same deal), community events, and more.
Sewer systems and national defense can also be considered public goods. How "good" are the uses or applications of precious scarce resources in this venue? Maybe time will tell. but you'd guess that, as the country gets relatively poorer-resourced, tough decisions will have to get made.
Countries with higher taxes typically have more public goods. The government allocates or re-allocates the savings of the rich, and oftentimes higher quality public goods.
Public goods are “nonexcludable” and “nonrivalrous.” Nonexcludability means that nobody is excluded...even if someone didn’t cough up any cash to receive the benefits of the good. Whether you paid your taxes or not, you can go to the park and the library. Didn’t pay...doesn’t matter. Nonrivalrous means that more and more people can consume the good without additional costs, and without preventing others from consuming the good. Just because you’re breathing the air doesn’t stop your neighbor from doing so. You can take your dog on a walk in the park, which won’t stop others from indulging in the park’s, um, park-ness.
To contrast, what’s excludable and rivalrous. i.e. the opposite of a public good? How about…roller coasters? A roller coaster is rivalrous, since there can only be so many people on the rollercoaster at once. If the theme park is conforming to safety regulations, anyway. It’s also excludable; you have to pay to get into the theme park to ride the roller coaster, because theme parks care about profits. Roller coasters are definitely private goods.
Anyway, public goods sound pretty great, right? There’s something utopic about them: everybody can use them, at the same time, and without paying. But they have their fair share of problems, just like private goods.
The biggest issue is the “free rider problem,” which is when people take advantage of public goods by not paying for their fair share of the good. For instance, if you’ve ever watched a firework show from afar for free when it cost money to get closer, then you’re a free rider. You benefited from the fireworks show, but didn’t pay for it. And you couldn’t be excluded from watching since it’s, like...in the sky.
When people get the benefits without having to pay for the costs of that benefit, many goods and services that people would otherwise be willing to pay for will disappear, or never make it to the market at all. Take our fireworks example: if everybody decided to free ride and watch the fireworks show from a bit farther away for free, and nobody bought tickets to the firework show, there is probably not going to be one next year.
The moral of the story? Too much free riding kills firework shows (and other goods). Which is why excludability and property lines are so important. A theme park wouldn’t last long if there wasn’t a wall surrounding it, and you could just walk in and ride roller coasters for free.
The free rider problem goes hand-in-hand with positive externalities. Positive externalities are benefits somebody gets without paying for them...and without necessarily asking for them. For instance, if you love firework shows and happen to have a great view of a firework show from your own backyard, you just got a positive externality. The fireworks show producer can’t charge you for viewing the show. Maybe there’d be more firework shows if they could make them more excludable, reducing the positive vibes...er, positive externalities...they’re giving out for free.
So what makes our public goods like parks and libraries...work? The free rider problem is avoided, because those goods are typically paid for by the government, which means its funded by taxes. And who pays taxes? The public does. Which means free riding isn’t a problem, because most people are already paying for the parks and libraries, whether they like it or not.
People who aren’t paying taxes are free riding when they hang out in the park and the library, but because the numbers are few, and it doesn’t affect the funding of those goods, it’s not problematic enough to make libraries and parks shut down.
What else are you free riding if you’re not paying your fair share of taxes? Things that everyone in the country benefits from...like national defense, access to clean water, and public radio.
Free riding that isn’t okay? The free riding Nicholas Cage does in Ghostrider.
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Econ: What are Public Goods?3 Views
And finance Allah shmoop What are public goods order Well
the public has a lot of things mostly opinions but
also goods like public goods or goods or services that
all people of society have access to which are created
for public benefit rather than profit If you want to
get all technical about it well public goods are non
excludable and non rivalrous Well non exclude ability means that
nobody is excluded Even if someone didn't cough up any
cash to receive the benefits of that good whether you
paid your taxes or not you can go to the
park into the library Didn't pay Doesn't matter We'LL Non
rival risk means that more and more people can consume
the good without additional costs and without preventing others from
consuming the good There Yeah just because your breathing the
air While that doesn't stop your neighbor from doing so
you can take your dog on a walk in the
park which won't stop others from indulging in the parks
Um you know Park nous well to contrast what's excludable
and rivalrous I e The opposite of a public good
Well a private good like How about roller coasters A
roller coaster is rival risk since there can be only
so many people on the roller coaster at once if
the theme park is conforming Teo you know safety regulations
Anyway The roller coaster is also excludable because well you
have to pay to get into the theme park to
ride the roller coaster because well theme parks care about
profit Roller coasters are definitely private goods Will public good
sound pretty great right There's something you topic about them
Everyone can use them at the same time and without
paying a cent But they have their fair share of
problems just like private goods The biggest issue is the
free rider problem which is well when people take advantage
of public goods by not paying their fair share of
the good For instance if you've ever watched a firework
show from afar for free when it cost money to
get closer well then you're a free rider You benefited
from the fireworks show but you didn't pay for it
and you couldn't be excluded from watch Sing it since
it's like you know in the sky well when people
get the benefits without having to pay for the costs
of that benefit Many goods and services that people would
otherwise be willing to pay for will disappear or never
make it to the market at all Take our fireworks
Example If everybody decided to free ride and watch the
fireworks show from a bit farther away for free and
nobody bought tickets to that firework show well then they're
probably not going to be one next year The moral
of the story while too much free riding kills firework
shows and you know other goods which is why exclude
ability and property lines are so important at least important
to respect A theme park wouldn't last long if there
wasn't a wall surrounding it and you could just walk
in and ride the roller coasters for free The free
rider problem goes hand in hand with positive externalities like
positive externalities air benefits somebody gets without paying for them
and without necessarily even asking for them For instance if
you love firework shows and happen to have a great
view of firework show from your backyard while you just
got a positive externality the fireworks show producer can't charge
you for viewing the show from your own backyard Maybe
there would be more firework shows if they could make
them mohr excludable reducing the positive vibes or positive externalities
that they're given out for free right So what makes
our public goods like parks and libraries work well The
free rider problem is avoided because those goods are typically
paid for by the government which means it's funded by
taxes And who pays taxes You D'Oh The public does
anyway the people who work which means free riding isn't
a problem because most people are already paying for the
parks and libraries Oh whether they like it or not
People who aren't paying taxes are free riding when they
hang out in the park in the library But because
the numbers of free riders air so few well it
doesn't really affect the funding of those goods And at
least as a present it's not problematic enough to make
libraries and parks shut down But we'LL see what the
future holds here What else are you free riding If
you're not paying your fair share of taxes while things
that everyone in the country benefits from like national defense
it's an access to clean air and water Public radio
Yeah that's a freebie to All right Well free riding
That isn't Okay Well the free riding Nicolas Cage does 00:04:10.095 --> [endTime] in Ghost Rider Yeah So not Okay Hi