Public Goods Theory and Public Policy

Abstract

Public goods theory has been a cornerstone of the economic theory of the public sector since the 1950s. Inspired by a pair of path-breaking articles by Paul Samuelson, published in 1954 and 1955, the economics profession has accepted a rigorous definition of the term “public good” and has used the concept of a public good to outline a role for government production in the economy. Public goods theory purports to show why goods with the rigorously defined characteristics of publicness cannot be produced efficiently by the private sector of the economy, creating a market failure which implies a role for government in the production of those goods for which the market fails.