The Theory of Public Goods

Abstract

goods have properties of non-rivalness and non-excludability. Non-rivalness in consumption means that an increase in someone's consumption does not reduce the availability of consumption for others. Non-excludability means that someone cannot be excluded from consuming a good because of technical or other reasons simply because she or he does not pay the price. Goods that are not perfectly excludable or rival are called impure public goods. Non-excludable and non-rival public goods may have different spillover effects among people. Impure public goods may be classified according to the degree of spillover. For example, consider a streetlight. Imagine that a community has many people who need the benefit of streetlights. A streetlight could be set in front of a house in this community. The benefit of the streetlight may be indicated by the degree of brightness of its light. Let us denote by 1 the brightness in front of the house. The brightness for the houses of others may represent the degree of spillover. If this is zero, the streetlight does not provide spillover and is a private good. However, if it is unity, namely the spillover effect is the same as the original light and everyone can enjoy the benefit equally, it becomes a pure public good. If the brightness is between 0 and 1, namely the spillover effect is positive but smaller than the original effect, it becomes an impure public good. Both pure public goods and impure public goods are sometimes simply called public goods. The government does not necessarily have to provide public goods. On the contrary, the private sector can provide certain types of public good. For example, education may be regarded as an impure public good with excludability but without