case study on public goods

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Case Study: Commitment to Public Good

Francis collins: a commitment to public good, public health and public service leadership  .

In the 1980s, a young scientist at the University of Michigan was working to identify the gene that causes cystic fibrosis, an inherited disease that researchers had been investigating for years.  

Hitting roadblock after roadblock, the scientist was faced with a choice: go it alone and hope eventually to take credit for a discovery—or join forces with others competing for the same recognition.  

He chose the latter, pitching a collaborative effort with Dr. Lap-Chee Tsui at the Hospital for Sick Children in Toronto. Combining their labs, Tsui and the scientist identified the gene two years later, a landmark discovery that laid the groundwork for future advancements in the treatment of cystic fibrosis and marked one of the first times the genetic basis for an inherited disease had been found.  

That scientist was none other than Dr. Francis Collins, one of the nation’s foremost public servants who has left an indelible mark on global medicine in roles ranging from leader of the Human Genome Project to director of the National Institutes of Health to science advisor to the president.     

Collins’ work on cystic fibrosis foreshadowed his approach to solving other pressing health challenges: a willingness to collaborate and engage others ; a strong self-awareness with a unique blend of academic and emotional intelligence; a desire to lead change by taking calculated risks; and a steadfast focus on achieving results for individual patients.  

Throughout his four-decade career, Collins has leveraged all of these leadership competencies to serve the public good and improve the well-being of current and future generations worldwide. 

“I did not enter government as a public servant to add more entries to my CV about a committee I served on or a project I led. I became a public servant to give myself in every way that I can to advance the cause of human health for the benefit of humanity,” Collins said. 

Commitment to Public Good

For federal leaders to achieve their agencies’ expansive missions that promote the general welfare of the American people, they need a deep-rooted service orientation and commitment to the public good.

“The path of least resistance”  

The irony is that Collins almost didn’t make the jump from academic medicine to public service.  

Content with leaving his mark as a professor of internal medicine and human genetics at the University of Michigan, he initially balked at the opportunity to lead the Human Genome Project—a sweeping initiative that aimed to map and sequence all the genes of the human race—when offered the role by former NIH Director Bernadine Healy.  

At the time, Collins had only run research labs and found the prospect of managing the “largest big science project ever in biology and medicine” daunting.   

Still, he found himself uneasy about declining Healy’s offer, wary that he would later regret the decision to pass on such a unique public service opportunity.  

“What worried me was that I was taking the path of least resistance by staying at Michigan and potentially passing up something that would allow me to make a much greater contribution to the country, to the world and to human health,” he said.  Three months after telling Dr. Healy “no,” he said “yes.” 

From the story: How did Dr. Collins’ background prepare him for a career in public service?

For reflection:  What contribution to the country and the world do you make in your public service?

For action:  In what ways can you forego the path of least resistance in your public service leadership?

Engaging Others

When Collins began work on the Human Genome Project, he faced the management challenge of a lifetime: the need to recruit thousands of scientists in both the U.S. and overseas, build consensus on goals and standards for their work, and set a timetable for delivering findings and results.   

“I floundered quite a bit for the first few years trying to figure out how to organize this effort,” he said.  

Collins overcame these challenges by employing the same strategy he used to make a breakthrough on cystic fibrosis—he practiced an egoless and inclusive leadership style that prioritized collaboration and relationship-building to bring some of the world’s best and brightest scientists on board and propel the project.   

Collins said a major key was respecting others’ expertise and being self-assured enough to “give them the permission to shine and to tell me when I was wrong.”  

“It would have been harmful as a leader to send a message that everybody has to just do what I say,” he said.  

Ultimately, more than 2,000 scientists working in six countries mapped the full genetic blueprint for a human being, identifying over 20,000 genes and sequencing 92% of the human genome in 2003. The work continues to provide researchers and health care providers with a wealth of new information to diagnose, treat, prevent and cure diseases associated with certain genes.  

For Collins, the key lesson is that engaging others to meet common goals often outweighs the benefits of taking sole credit for a scientific discovery.   

“Rather than say, ‘I’m the one who did it all by myself,’ I got to build relationships and experience science in a much more inspired way. Pretty much everything I’ve done ever since has involved looking for partners and for people who had the skills and visions to make things happen that otherwise would take a really long time,” he said.  

Collins incorporated those same views into his twelve years as NIH director. Indeed, during the COVID-19 pandemic, Collins tapped into relationships he had built over the years with research and development leaders as well as the heads of major pharmaceutical companies to launch Accelerating COVID-19 Therapeutic Interventions and Vaccines , a public-private partnership aimed at developing promising coronavirus treatments and vaccines.  

Collins called the group “the most amazing partnership I’ve ever been part of” and a core driver of the federal efforts to develop safe and effective COVID-19 vaccines.   

Despite the demands of the pandemic—with staff working around-the-clock to develop new tests, treatments and vaccines, and Collins reportedly working 100-hour weeks at times—employee satisfaction and morale at the NIH held steady.  

According to the 2020 Best Places to Work in the Federal Government ® rankings, the agency placed 63rd out of 411 agency subcomponents, with its highest mark coming in the “Effective Leadership: Senior Leaders” category.  

During his tenure, the NIH also had nearly 30 finalists—12 of whom were winners—recognized at the Partnership’s annual Service to America Medals ® gala, the nation’s preeminent awards program for federal employees.  

Collins attributes some of his leadership successes to self-care and maintaining healthy outlets to decompress. When not leading medical breakthroughs or combatting the pandemic, he can be found playing guitar in his rock ‘n’ roll band or riding bikes with his wife, Diane Baker, a leader in genetics counseling. He also stayed centered and grounded through his faith, starting most days with prayer and some Bible reading.   

Overall, Collins fostered a culture of excellence at the NIH that enabled the agency to face adversity and mount a speedy and effective response to the pandemic.  

“I will not forget being told, as the results were being unblinded for the phase three trial for the COVID-19 vaccine, that it was 95% effective. It was just like such an answer to prayer,” he said. 

From the story: How did Collins’ mindset on building partnerships serve his goals and/or ambitions? 

For reflection: What are your patterns for shining a light on others’ work and giving credit? 

For action: How might you better achieve your organizational goals through cross-boundary partnerships and empowering those around you? 

Becoming Self-Aware

The genome project also reinforced Collins’ sensitivity to diversity, equity and inclusion, and demonstrated his willingness to confront his own privilege—both as a white male and as a member of a medical establishment that has not always earned the trust of underserved communities.   

Collins said the project illustrated that people with different skin color are at “the DNA level 99.9% the same” and underlined his commitment to reducing health care disparities—something he roots in the “long thread of 400 years of structural racism in our society.”  

During the pandemic and under Collins’ leadership, the NIH prioritized this issue, supporting new federal programs to increase testing and participation in COVID-19 vaccine trials in underserved communities across the country. These efforts were recognized at the Partnership’s 2021 Service to America Medals ® program. 

“I grew up not with a lot of financial resources, but I have had experiences as a white male of having doors open that would not necessarily have been opened to others,” he said.   

Collins also was a strong supporter of providing leadership opportunities for women in biomedical research. As NIH director, he hired 11 women as directors of NIH institutes and centers. And he announced that he would no longer take part in “manels”—panels only populated by men—at scientific meetings, starting a trend that was subsequently adopted by many other leaders. 

In 2013, Collins met with the descendants of Henrietta Lacks— a young African American mother, now the subject of a film and best-selling book —whose cancer cells were used by Johns Hopkins Hospital in 1951 to create an immortalized cell line—the HeLa cell line—that has enabled important medical breakthroughs.  

For decades, ethical issues clouded these discoveries—information about Lacks’ cells were shared with researchers without her consent; her genetic information was made public; and the medical companies who profited from her cells did not compensate or even thank members of her family.    

In 2013, Collins met with Lacks’ family three times over a four-month period to hash out an agreement for sharing DNA information from the cell line. Eventually, they agreed to release information on a case-by-case basis, pending approval from a review committee that includes family members.  

“I did a lot of listening to Henrietta’s children and grandchildren about how they felt, and answered their questions about what this would do for science,” he said. “I learned a lot from that interaction about what it means to be African American in the U.S.”   

Today he considers those family members as friends and colleagues. 

From the story:  How did Collins earn trust with Henrietta Lacks’ family and the trust of Americans when it came to progressing science and medicine?  

For reflection:  Where might your privilege or perspectives get in the way of you improving the lives of underserved communities? 

For action:  In what ways can you improve the lives of historically marginalized populations through your leadership? 

Leading Change

After leading the genome project, Collins became NIH director. In that role, he oversaw a sprawling multibillion dollar organization focused on nearly every aspect of public health in the U.S. 

From the get-go, Collins took calculated risks and embraced uncertainty to maximize the agency’s impact.  

He prioritized supporting new and emerging projects in addition to more established ones that had already demonstrated proof of concept. Collins admitted that it was risky to fund projects lacking “a lot of preliminary data,” but recognized that NIH’s normal peer review process, while essential, often weeded out more experimental and potentially groundbreaking projects.   

“We wanted to support people who weren’t sure their project was going to work, but knew that something really significant would happen if it did,” he said.  

He also explored bigger opportunities “that could completely flop” but offered new possibilities in the field of science and medicine.   

Using his convening power as NIH director and with support from the Obama administration, Collins brought together leading neuroscientists to develop a large-scale effort to better understand how the brain works called the BRAIN Initiative . Now in its seventh year, the initiative uses innovative technologies to show how individual cells and neural circuits in the brain interact over time and space—knowledge that is critical to treating, preventing and curing brain disorders.  

Another “unproven investment” involved trying to build a public health data set to enable better precision medicine—a type of medicine that customizes health solutions based on an individual’s unique genetic and environmental factors.  

Today, the All of Us Initiative , has collected electronic medical records, laboratory data— ultimately complete genome sequences—and health behavior information from more than 400,000 research partners across the U.S. to build one of the most diverse health databases in history.   

Collins called the project “risky in all kinds of ways,” but believes the benefits of developing new knowledge about managing illness outweigh the costs.   

“Advances in health and medicine aren’t going to happen just by waiting,” he said. “My main job as NIH director was to look across the landscape and identify bold new ideas and opportunities to make a difference.” 

From the story:  What were some of Collins’ reasons for taking risks as NIH director? 

For reflection:  What gets in the way of risk-taking for you as a public service leader?  

For action: How might you instill an innovative mindset across your teams and encourage risk-taking to achieve greater results?

Achieving Results   

At the core of Collins’ drive to make these larger advances in medical health lay a steadfast commitment to individual patients and customers. Throughout his career, Collins has considered himself a “physician-scientist” whose research projects “typically begin with a patient interaction.” 

“I have found it useful to strive toward large-scale projects, but to also remember that, when it comes down to it, it’s about one person at a time that I’m trying to help,” he said.   

This focus on helping patients has enabled Collins to expand the reach of his work. 

For example, his lab has worked for decades to determine the cause of and develop treatments for Progeria, a rare genetic disease that causes premature aging in children. Even though the disease impacts just a few hundred children worldwide, seeing its effects on children up close has pushed him to make it a research priority.  

“I just couldn’t look away when I saw that disease,” he said. “Nobody had really ever tried to sort it out.”  

Thanks to his work, the Food and Drug Administration recently approved the first treatment for Progeria and new advancements in gene-editing are being developed to extend the lifespan of people with the disease.  

When times are tough, Collins looks to the patients with whom he has worked for strength and inspiration.  

For example, he keeps several reminders in his home office of Sam Berns—a young boy who lost his life Progeria in 2014 and whose parents started the Progeria Research Foundation in 1999.   

More recently, Collins busted out his guitar to play music with a 13-year-old NIH patient with sickle cell disease who is also a talented violinist. He said that playing their instruments together in the atrium of the NIH Clinical Center, the largest research hospital in the world, served as a poignant reminder of the human impact of his work.  

“What we do in medical research connects us to patients,” he said. “When we’re in a rough spot, we should be reminded and encouraged that this is something that’s really making a difference.” 

From the story:  How does Collins’ commitment to public good center back on individual people? 

For reflection:  Consider the people you serve and, where possible, think of an individual person. What difference does your service make in their life?  

For action:  What can you do to renew your commitment to public good? What inspires you and keeps you driven to succeed in your and your agency’s missions? 

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Public Goods

The government plays a significant role in providing goods such as national defence, infrastructure, education, security, and fire and environmental protection almost everywhere. These goods are often referred to as “public goods”. Public goods are of philosophical interest because their provision is, to varying degrees, essential to the smooth functioning of society—economically, politically, and culturally—and because of their close connection to problems concerning the regulation of externalities and the free-rider problem. Without infrastructure and their protection goods cannot be exchanged, votes cannot be cast, and it would be harder to enjoy the fruits of cultural production. There is widespread agreement among political philosophers that some level of education is required for democracy to be effective. Due to their connection to externalities and the free-rider problem, the provision of public goods raises profound economic and ethical issues.

As we will see in Section 1, the economic definition of a public good has little to do with whether these goods are provided by the public or by private enterprises but with certain abstract features that are shared by many different goods, only some of which are regularly produced publicly. The abstract features economists use in their definition depend on technology, values and tastes, making boundaries contested and shifting over time. Section 2 will introduce the notion of an externality, and in Section 3 the standard neoclassical welfare economic analysis of public goods will be examined. Section 4 looks at the private provision of public goods. Section 5 offers a review of recent experimental work on public goods (which challenges the standard analysis to some extent). Section 6, finally, discusses some ethical arguments relevant to the provision of public goods.

1.1 Non-Rivalry and Non-Excludability

1.2 porous boundaries, 1.3 different kinds of public goods, 1.4 examples of public goods, 1.5 an alternative definition, 2. public goods and externalities, 3.1 the public-goods problem, 3.2 responses to the public-goods problem, 4.1 coupling, 4.2 other mechanisms, 5.1 public goods games, 5.2 other kinds of evidence: field studies, observational studies, case studies, 6.1 controversial assumptions in welfare economics, 6.2 the market as a discovery process, 6.3 market norms and other norms, other internet resources, related entries, 1. defining public goods and distinguishing between different kinds of public goods.

Even though Nobel laureate Paul Samuelson is usually credited with having introduced the theory of public goods to modern economics (e.g., in Sandmo 1989), the origins of the idea go back to John Stuart Mill, Ugo Mazzola (an Italian writer on public finance), and the Swedish economist Knut Wicksell (Blaug 1985: 218–9 and 596–7]). Samuelson defined what he called a “collective consumption good” as:

[a good] which all enjoy in common in the sense that each individual’s consumption of such a good leads to no subtractions from any other individual’s consumption of that good…. (Samuelson 1954: 387)

In the contemporary debate, this feature or characteristic of goods is usually referred to as “non-rivalry”. A good is rivalrous if and only if an individual’s consumption of it diminishes others’ ability to consume it. Bob’s consumption of a grain of rice makes it impossible for Sally to consume the same grain of rice. By contrast, Sally’s enjoyment of Bruckner’s Symphony No. 9 in no way diminishes Bob’s ability to do the same. Rice is thus rivalrous while music is not. [ 1 ]

A few years after Samuelson, Richard Musgrave introduced an alternative criterion, that of (non-) excludability (Musgrave 1959). As the name suggests, a good is excludable if and only if it is possible to prevent individuals from consuming it, to “draw a fence around it” as it were. Land is thus a good that is considered excludable, while streetlight is not excludable: if Bob pays for a streetlight to be installed, he cannot stop his neighbour Sally from benefitting from it.

In contemporary economics, goods are usually defined as public goods if and only if they are both non-rivalrous and non-excludable (e.g., Varian 1992: 414). Rivalrous and excludable goods are called private goods. National defence is a paradigmatic example of a public good. Not only does Sally’s consumption of national defence not reduce Bob’s consumption; she could not prevent him from consumption if she tried. Food, clothes and flats are paradigmatic examples of private goods.

There are also goods that are rivalrous and non-excludable and goods that are non-rival and excludable. The former are sometimes called “common pool resources” (e.g., V. Ostrom & E. Ostrom 1977, E. Ostrom et al. 1994; E. Ostrom 2003). An example is fish stocks. The latter are sometimes called “club goods” (e.g., Mankiw 2012: 219; see also Buchanan 1965). Examples include watching a movie in a cinema and the services provided by social and religious associations.

Table 1 provides an overview of the different types of goods that have been distinguished so far.

Table 1: Different kinds of economic goods

The boundaries between these different types of goods are neither sharp nor fixed. For example, whether or not Bob’s enjoyment of a movie in a theatre is affected by Sally’s watching the movie in the same theatre at the same time depends on Bob’s values or tastes as well as details of the context. Sally might sit in front of Bob and partially block his view. Or she might be one of those people who sits right next to you even though fifty other seats are available. Or Bob might be bothered by anyone sitting in the same theatre at the same time, or enjoy watching the movie together with others. Thus, even supposing that Sally doesn’t alter Bob’s viewing of the movie as such, her presence can have a positive or negative effect on Bob’s enjoyment of it. Thus, whether or not a good is rivalrous in consumption depends on many contextual details and not just the nature of the good alone.

The same good can be excludable at one time, but non-excludable at another, or excludable in one society, but non-excludable in another. For example, radio broadcasts used to be a public good because it was not (easily) possible to prevent individuals from tuning in, but this is no longer the case in the digital age. But technology is only part of the story. A particular plot of land—a prime example of a private good—can be protected by building a fence around it. But there is no fence that cannot be overcome. In reality, a fence is more like a signal indicating that the owner prefers to keep others out, or it makes it more costly for them to do so. What matters for the characterisation of land as a private good is that the landowner has the right to stop potential trespassers and that this right will be enforced by the legal system. Of course, which sets of rights are attached to property depends on the norms prevailing in a society. Property rights are never absolute (property in a chain saw gives me the right to use it to cut my own trees but not to cut my neighbour’s trees, much less to use it to hurt anyone), and always the result of past negotiations.

To give a silly example, not everyone enjoys the sight of (particularly, white) socks in sandals. In our society, the sight of socks in sandals is something individuals have to endure because it is considered to be within the rights of the owners of white socks that they can wear them in public, in sandals or in other types of shoes. It is easy, however, to imagine societies that define the rights of sock-owners differently and value the tastes of those who are bothered by the blight of socks in sandals more highly. Indeed, even in modern liberal societies social norms regulate what is decent to wear in public. Since a good’s degree of excludability depends in part on property rights, and what property rights entail may differ between societies and, within societies, may change over time, a good’s excludability may differ between societies and change over time.

Another, related aspect is that the cost of enforcing property rights differs between cases, partly for technological, partly for legal and political reasons. That automobiles are private goods depends on the relatively cheap availability of suitable locks and also on the fact that the government enforces property rights in automobiles. If the price of locks were higher, or the government made it illegal to secure one’s car using a lock, or the government stopped prosecuting theft, automobiles would be “non-excludable” (Demsetz 1964).

A corollary of the non-excludability characteristic is that there are limitations to consumers’ consumption decisions regarding the public good, if it is produced. Individuals might have different preferences for the level of security provided by national defence, but once national defence is in place, they will consume the level that has been produced, not more or less of it. One cannot “opt out” of the consumption of a public good. Similarly, while everyone might like clean air, individuals will differ in their degree of tolerance of pollution. But once “clean air” has been produced, consumers must consume it independently of their preferences.

It has been suggested that the “public” nature of a public good may be an effect of its provision by the public rather than its cause (Cowen 1992: 6 credits unpublished work from 1987 by Boudewijn Bouckaert). If a good is provided by government, private actors have no reason to develop technologies that allow the exclusion of non-paying individuals. Accordingly, public investment in the good thereby makes a good that could be private a public good. Even if this idea is mistaken, it illustrates the fact that the boundary between private and public goods is not fixed because what is technologically possible depends in part on investment in research and development.

The physical characteristics of a good, then, together with the context of its consumption, values, tastes, legal, moral and social norms as well as technological possibilities determine the proper categorisation of a good as a private, common pool, club, or public good.

Distinctions can also be drawn among public goods. Most public goods do not affect all inhabitants of a large community equally. Fire protection services in Lower Manhattan are not consumed by those living in the Bronx, much less by Californians. Public parks benefit those who live in the neighbourhood, playgrounds only those who live in the neighbourhood and have children of a certain age (and indeed they might constitute a public bad for others). Charles Tiebout has developed a theory of local government, after which the term “local public good” was coined (Tiebout 1956, Stiglitz 1982). Other public goods may benefit all of humanity, such as climate change mitigation. We can therefore distinguish local , national , and global public goods (on the latter, see Kaul et al. 2003).

A partial public good is one from whose consumption some individuals can be excluded but not others. Mancur Olson gives the example of a parade that is a public good for those living in tall buildings overlooking the parade route but a private good to those who need to buy a ticket for a seat in the stands along the way (Olson 1971: 14). A full public good, by contrast, is one from whose consumption all individuals can be excluded.

The following are examples of goods that are typically regarded as public goods:

• Security . National defence has already been mentioned as an example. More generally, the ability to live safely and peacefully in a neighbourhood, city, region, or country (for instance, through police and armed forces) is considered a public good because it is difficult to exclude any inhabitant of the protected area from benefitting from the protection and one inhabitant’s enjoyment of protection does not generally diminish other inhabitants’ equal enjoyment.
• Education and science . The public goods character of education and science is somewhat more subtle. It is easily possible to exclude individuals from being schooled, and so “having an MIT engineering degree” is a private good. However, the more educated the general population is, the more individuals benefit from this general education—independently of how much they invest (or the public invests) in their own education—in a manner that is non-excludable and non-rivalrous. A better educated population makes it easier for businesses to thrive, and everybody profits from a thriving economy, not only those who are well-educated. It is difficult to exclude individuals from a thriving economy and a given individual’s benefit is not diminished by anybody else’s benefit. Scientific ideas are also considered to be public goods (Boldrin & Levine 2008). Once an idea (such as a scientific theory) has been created it is difficult to exclude individuals from benefitting (unless the idea is protected by a patent, see below), and individuals’ benefit is non-rivalrous. It is important to distinguish between the idea and its physical manifestation. The idea of a steam engine is a public good, whereas particular steam engines are both excludable and rivalrous.
• Infrastructure . Though infrastructure is often referred to as a public good (e.g., OECD 2016), whether the classification is correct depends on the details of the specific kind of infrastructure and technology. Paradigmatic examples of infrastructure are often not public goods. Roads and motorways are excludable, as the existence of toll roads attests. If the toll for a private road is sufficiently low, it can be rivalrous as well due to congestion. The same can be said about the internet. A traditional lighthouse is more likely to have public-goods character, though depending on the physical nature of the signal it sends, it may well be excludable (Varian 1992: 415). The reason many commentators classify infrastructure as a public good is that it tends to lead to positive externalities. The (close) relationship between public goods and externalities is explained below.
• Environment . Clean air is a paradigmatic good, at least outside. Without massive infringements of an individual's rights it is virtually impossible to exclude him or her from benefitting from clean air. And outside of narrowly enclosed spaces, clean air is non-rival. Similarly with the absence of littering. If I decide not to litter, I cannot easily prevent you from enjoying the clean space, and your enjoyment of it does not reduce anyone else’s.
• Public health . Individuals benefit from a healthy population in a variety of ways. For example, the fewer individuals are infected with a contagious disease, the less likely it is that any given (currently healthy) infects him- or herself. These benefits obtain in a non-excludable and non-rivalrous manner. A healthier population is also more likely to be productive, making public health analogous to education.

Angela Kallhoff has offered an alternative, albeit similar, definition of a public good (Kallhoff 2011: Ch. 2). According to her, a public good is one that satisfies the “basic availability condition” and the “open access condition”. Basic availability is her analogue of non-rivalry. A good satisfies this condition whenever each person benefitting from it has access to the same amount and the same types of benefits. To state the condition in these terms makes explicit that there may exist a level of consumption at which sameness of amount and types of benefit are no longer guaranteed. A single ship’s enjoying the benefits of a lighthouse does not affect another ship’s doing the same but once the sea is congested this may no longer be the case. A lighthouse is a public good because there exists a level at which each person has access to the same amount and the same types of benefits. Open access is Kallhoff’s analogue of non-excludability. It states that

entrance barriers that regulate access to a good are not combined with criteria which define a list of potential beneficiaries and exclude others. (Kallhoff 2011: 43)

Clubs produce services for a specific group of beneficiaries, the club members. In order to profit from a lighthouse, an individual needs a boat and a desire to travel to the coast where the lighthouse is located but there is no pre-specified collective that constitutes the intended beneficiaries of this good.

Externalities are effects of economic transactions on individuals that are not party to the transaction. The paradigm example is pollution: a company produces some good the production process for which is “dirty” in that it affects individuals independently of whether or not they are customers of the company. If such effects are undesired, as in the case of pollution, they are called negative externalities; if they are desired, positive externalities. A paradigmatic example of a positive externality is the pollination created by a honey producer’s bees. Individuals benefit from pollination whether or not they buy honey.

Public goods create positive externalities. Suppose a group of individuals get together and pay some company to produce (analog) radio broadcasts. Individuals who are not party to the transaction can now benefit from the good. Similarly, if a group of citizens get together to clean up a public park, individuals will benefit whether or not they were part of the group of citizen cleaners.

The existence of a public good implies the existence of (positive) externalities, but the reverse is not true. The beekeeper’s bees may pollinate the trees in the neighbouring orchard, thereby increasing its production, but that does not mean that it is impossible to exclude others from this or other benefits or that these benefits are non-rivalrous.

3. The Economics of Public Goods and the Public-Goods Problem

The provision of public goods is often associated with market failure due to the externalities created by the public good. Suppose that in a two-by-two toy economy Bob and Sally decide how much to invest in a discrete public good G such as a radio station. Both have an initial endowment of a private good (which functions as money in this economy). The public good will be produced \((G = 1)\) if the sum of contributions \(g_{\textrm{Bob}}\) plus \(g_{\textrm{Sally}}\) is higher than the production cost c . Thus (Varian 1992: 415):

How much they will contribute will depend on their reservation prices \(r_{\textrm{Bob}}\) and \(r_{\textrm{Sally}},\) i.e., on the maximum amount of the private good each agent is willing to give up for the public good. It is then easy to show that the production of the public good will be a Pareto-improvement if and only if (Varian 1992: 416) [ 2 ] :

that is, if the sum of reservation utilities exceeds the cost of providing the public good. This is analogous to the efficiency condition for a private good, which is efficiently provided whenever an individual’s willingness to pay exceeds the cost of producing it. In case of a public good, since consumption is non-rivalrous, it is enough when the sum total of all reservation prices exceeds the production cost.

In the simple two-by-two case, let us assume that \(r_{\textrm{Bob}} = r_{\textrm{Sally}} = 100\) and that \(c = 150,\) so that the efficiency condition is satisfied. If either Bob or Sally buy the public good, but not both, they would have to be charged the full cost, leading to an outcome of \(-50.\) The not-buying individual will free-ride on the other’s contribution and get 100. If both contribute, each receives a benefit \(100 - 150/2 = 25.\) If neither contributes, the good will not be produced and both end up with zero. The payoffs are displayed in the matrix in Table 2.

This payoff structure is identical to a Prisoner’s Dilemma and illustrates the free-rider problem. Bob prefers the public good to be produced but since he benefits from it whether or not he contributes, his most preferred alternative is that in which Sally pays for its production and he free rides on her contribution. Sally faces identical payoffs. Therefore, both will choose not to contribute, meaning that the public good will not be produced, even though the alternative outcome in which both contribute would be Pareto superior. A Pareto-superior outcome is one that makes at least one individual better off while making no-one worse off. (Contribute; Contribute) is Pareto-superior to (Don’t contribute; Don’t contribute). (Don’t contribute; Don’t contribute) is the equilibrium strategy (in the sense that no player has a reason to deviate from playing it, given the other player’s move) but at the same time there is an outcome both would prefer if it could be reached, namely, (Contribute; Contribute).

Given this structure of benefits as well as rationality and self-interest of the members of a group, we can expect that free markets will undersupply public goods. As individuals have strong incentives to free ride and the incentive structure is exactly the same for everyone, everyone tries to free ride and the public good will not be produced in consequence. Let us call the apparent inability of the market to provide public goods in a sufficient quantity the problem the “public-goods problem”.

Many economists regard the public-goods problem as a justification for advocating coercive government action (e.g., Sidgwick 1901; Pigou 1920 [1932]; Samuelson 1954). The argument actually goes back to the origins of economics. In Book 5 of the Wealth of Nations , Adam Smith listed three functions of government. “The third and last duty of the sovereign or commonwealth,” Smith says,

is that of erecting or maintaining those public institutions and those public works, which, although they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could not repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain. (1776: Bk 5, ch. 1)

Similarly, in the nineteenth century John Stuart Mill wrote that:

… it is a proper office of government to build and maintain lighthouses, establish buoys, etc. for the security of navigation: for since it is impossible that the ships at sea which are benefited by a lighthouse, should be made to pay a toll on the occasion of its use, no one would build lighthouses from motives of personal interest, unless indemnified and rewarded from a compulsory levy made by the state. (1848 [1963: 968])

However, it is not easy for the government to estimate the demand for a given public good and calculate the appropriate level of taxes. If preferences were observable, the government could charge each citizen according to their marginal benefit (thereby levying so-called “Lindahl taxes”), and an efficient equilibrium (the “Lindahl equilibrium”) would result (Varian 1992: 426; Roberts 1974). But preferences can’t be observed. If they can’t, people have an incentive systematically to understate their reservation prices in the hope that others won’t do the same so they can free-ride on others’ tax contributions. If everyone does that, the public good doesn’t get funded publicly.

Leif Johansen has argued that the free-riding argument is less compelling than it appears (Johansen 1977). On the one hand, there is little evidence that people systematically misstate their preferences in elections. On the other hand, public goods are produced at rates that are much higher than would be suggested by the free-rider theory, which assumes that utility is strictly increasing in private consumption. The empirical evidence on these questions will be reviewed in Section 5 of this entry.

There are mechanisms that encourage individuals to reveal their true valuations of the public good. One is the so-called Groves-Clarke mechanism (after Groves 1973 and Clarke 1971). Here each individual submits a bid, which may be positive or negative, and which may or may not reflect the individual’s true value of the public good (i.e., the reservation price minus the cost). The public good is provided if and only if the sum of bids is at least zero. Apart from the public good, each individual receives a “side payment” calculated as the sum of all other individuals’ bids (which may also be negative, i.e., a tax).

No individual has an incentive to misrepresent his or her true values under the Groves-Clarke mechanism. Suppose we change the valuations in the above example so that the public good is now worth −24 to Bob (by adjusting his reservation price to 51). It should still be produced as the sum of valuations remains positive (alternatively, the sum of Bob’s and Sally’s reservation prices remains above the cost of producing the public good). Bob does not have an incentive to misrepresent his valuation (by bidding below −24) because with the transfer of 25 he receives he is still better off than if the public good was not produced. The same is true of Sally. She’ll have to pay a tax of 24 but is still better off than if the public good was not produced. If we lower Bob’s reservation price further to below −25, he would be worse off despite the transfer and thus accurately bid the true, low value. Sally, even though she would prefer the public good to be produced in the absence of transfers would also be worse off after paying the tax and therefore has no incentive to overstate her valuation.

The problem with the Groves-Clarke mechanism is that it is very expensive—large payments are needed in order to induce individuals to bid their correct value. There are alternative mechanisms that avoid positive payments but at the expense of generating social waste (Varian 1992: 428).

4. The Private Provision of Public Goods

Mancur Olson was among the first economists who studied the private provision of public goods in great detail (Olson 1971). He argued that the existence of a common purpose or common interests is characteristic of organisations . But if these interests are served, that means that a public good has been created. Therefore:

It is of the essence of an organization that it provides an inseparable, generalized benefit. It follows that the provision of public or collective goods is the fundamental function of organizations generally. (Olson 1971: 15)

But that doesn’t mean that organisations cannot also produce private goods:

There is no suggestion here that states or other organizations provide only public or collective goods. Governments often provide noncollective goods like electric power, for example, and they usually sell such goods on the market much as private firms would do. Moreover, as later parts of this study will argue, large organizations that are not able to make membership compulsory must also provide some noncollective goods in order to give potential members an incentive to join. (Olson 1971: 16; emphasis in original)

The coupling of private and public goods is one important mechanism through which private enterprises can be enabled to provide public goods. In the eighteenth century, lighthouses were public good because their “consumption” was non-rivalrous (barring congestion) and non-excludable (using the technology available then). Port spaces are private goods, however. British lighthouses were often financed by imposing light dues on ship owners at the ports (Coase 1974). The dues were calculated by the net ton per voyage for all ships arriving at, or departing from, ports in Britain. A public good that is coupled with a private good as a mechanism for its financing is called an “impure” public good (Cornes & Sandler 1984).

Shopping centres and some apartment buildings provide other examples of impure public goods. Shopping malls provide public spaces, streets, parking space, and security for which consumers pay indirectly by buying the merchandise offered in the shopping centre. Similarly, some apartment buildings offer common spaces and infrastructure for which owners pay through supplements to the apartment prices or rentals.

The shopping centre example illustrates a potential problem for the private provision of a public good. Suppose that it is prohibitively expensive to charge individuals for the use of parking spaces provided. Parking space is then a public good because non-shoppers can use it free of charge. Suppose further that the owner of land nearby exploits the situation by building a competing shopping centre that does not offer parking space. The new shopping centre can price its competitor out of the market by offering lower prices for the merchandise it sells because it does not have to pay for parking space.

However, at least in principle the owner of the first shopping centre can avoid this by purchasing the surrounding land before free parking is allowed. After Ronald Coase this mechanism for solving externalities problems is referred to as “extending the role of the firm” (see Demsetz 1964). Another example for this mechanism involves the public good pollination. If a bee keeper and the owner of an orchard cannot agree on the value of the pollination and nectar, either is free to buy the other’s property and thus internalise the externality by extending the firm.

An alternative reason for existence of privately provided public goods is that people do not always act in a fully self-interested manner. Most economic models assume that people care only about the benefits a public good provides to them, but people in fact also care about the outcomes for others. Donations to charity and political campaigns are obvious examples. One way to model this is to assume that the act of giving itself provides additional utility distinct from the utility obtained from the aggregate level of provision of the public good (Steinberg 1987).

A third reason for the ability of public goods to be provided privately to be discussed here is the existence of social norms. For example, as long as individuals meet repeatedly to decide about the creation of a public good, they might realise that lying is self-destructive, and as the situation is iterated, it is possible that a norm of truthful revelation of the valuations is developed upon which a convention of telling the truth would be built (Taylor 1976; Schotter 1981). That a non-co-operative strategy is not necessarily optimal in repeated games is a well-known result in game theory (see entry on game theory, section on repeated games and coordination ).

Other norms such as “everyone should do their bit” or fairness and equality norms can also help to increase private contributions to public goods. People might simply think that it is morally wrong to free ride (Sugden 1984). Social norms can motivate people to act altruistically but also help to solve co-ordination problems by specifying property rights and the terms of contracts (Young 1998). Clean streets (the absence of littering) can be regarded as a public good, and let us assume that littering isn’t punishable by law. In a game-theoretic setting, individuals would be expected to underproduce the public good, i.e., to litter too much. A norm not to litter can now help to induce people to co-operate and play the non-Nash equilibrium but Pareto superior strategy. The punishment of norm-violators through social sanctions will help to make people follow the norm without the government having to police norm following.

Most mechanisms discussed in this section can be expected to work better for local public goods than for national or global public goods. It is easier to negotiate with neighbours about littering than with people who live halfway across the globe, and people tend to feel more altruistic towards others who live nearby and are in other ways similar (Hamilton 1964).

5. Empirical Work on the Public-Goods Problem

There has been an explosion of experimental work relevant to the public goods problem since the rise of experimental economics in the second half of the twentieth century. An important strand in this literature describes results from so-called “public goods games” (for a survey, see Ledyard 1995).

A typical public goods game set-up is as follows. A number n of university students is brought into a room and seated at a table. They each receive an endowment of, say, €x. They are then asked to decide how much of that to spend on a group project, where contributions can range from €0 to the entire endowment. They put their contributions into an envelope so that other participants cannot see how much each individual has contributed. The sum total of the contributions is then doubled by the experimenter and divided equally among the participants.

A public goods game is an n -person Prisoners’ Dilemma. The Pareto optimal outcome is one in which everyone contributes their entire endowment. With \(n = 10\) participants and an endowment of \(x = €10,\) each participant would wind up with \(€20.\) But each individual has an incentive to contribute less. If everyone else contributed their entire endowment, each individual could receive up to \(9*€10*2/10+€10 = €28\) if they contributed nothing. This is the same for everyone in the game, and so the Nash equilibrium strategy is to contribute \(€0,\) resulting in a payoff of \(€10\) for each participant.

In experiments, the Nash-equilibrium strategy is typically played by only some of the players. Others contribute their entire endowment and yet others a sum in between. Total contributions typically lie between 40% and 60% of the social optimum. Other stylised facts include (Ledyard 1995: 13):

• In one-shot trials and in the initial stages of finitely repeated trials, subjects generally provide contributions halfway between the Pareto-efficient level and the free riding level,
• Contributions decline with repetition, and
• Face to face communication improves the rate of contribution.

The first two points have been described as “overcontribution and decay” (Guala 2005): people tend to contribute more than we would expect from a purely strategic point of view, but these overcontributions decline when the game is played repeatedly (though never to zero). Thus, people free ride less than advocates of government funding of public goods often suggest, but private provision is still at suboptimal levels.

There are a number of explanations for these phenomena. An obvious one is experience and learning: as players become more experienced with the set up, they come to understand that they can profit from non-co-operation (especially when others are slower to learn that lesson). Another one is that players’ behaviour is motivated by different considerations. Jon Elster describes six different types of co-operative behaviour:

Cooperation needs some individuals who are not motivated merely by the costs and benefits to them. Two categories of such individuals are what we shall call full utilitarians and selfless utilitarians . The first will cooperate if and only if their contribution increases the average benefit. […] The second category will cooperate if and only if their contribution increases the average benefit, not counting the costs to them … If the selfless utilitarians are too few, or if the predicament I described deters them from acting, unconditional cooperators are needed… These actors take a number of shapes—they may be Kantians, saints, heroes, fanatics, or they may be slightly mad. What they have in common is that they act neither as a function of the expected consequences of their action, nor as a function of the number of other cooperators. A further category of actors would never act as first movers, however. These are the individuals whose motivation is triggered by the observation of others’ cooperating or by the knowledge that cooperators can observe them… A first subset of this group are motivated by the quasi-moral norm of fairness: it is not fair for us to remain on the sidelines while others are taking risks for our common cause. […] A second subset are motivated by social norms. If noncooperators can be identified and subjected to social ostracism, as is usually the case at the workplace, for example, cooperators may shame them into joining. A final category are those who join the movement for its “process benefits”—because it is fun or otherwise personally appealing. (Elster 2007: 397–9; emphasis in original)

The presence of a certain proportion of conditional co-operators would explain why contributions start relatively high but go down over time. Empirical investigations confirm this explanation as well as the presence of “mixed motives” (Villeval 2012). In a classic paper, James Andreoni has argued that patterns observed in the data about charitable giving from U.S. national surveys are inconsistent with a model of pure altruism so that other motivations must be included to account for these data (Andreoni 1988).

A large number of factors appears to affect the size of the contributions. Apart from repetition (one-shot vs repeated games and number of rounds), experience and learning, and communication, the marginal payoff of contributions, the size of the group, provision points (in some experiments the public good is provided only if contributions reach a certain threshold), the heterogeneity of payoffs and endowments, and moral suasion (i.e., the priming of experimental subjects by experimenters) are among the factors that make a difference (Ledyard 1995: 36). Some results are quite surprising. For example, contributions increase with increasing thresholds at which the public good is provided while the probability that the threshold will be reached goes down (Isaac, Walker, & Thomas 1984). However, with heterogeneous endowments, there are no significant differences of contributions at different levels (Rapoport & Suleiman 1993). Similarly, contrary to economists’ expectations, group size can have a positive effect on contributions while it dilutes the effect of marginal returns (Isaac, Walker, & Williams 1994). That causal factors affect experimental results in unsystematic and quite unexpected ways appears to be a fairly general feature of experimental economics (Reiss 2008: Ch. 5).

Other kinds of empirical evidence that is relevant to the public goods problem include field experiments, observational studies, and case studies. They all have in common that they provide evidence that individuals make some voluntary contributions to public goods. What they investigate are the factors that affect the sizes of the contributions and the mechanisms used to encourage people to contribute.

Field studies have been used to examine the relationship between an individual’s contributions to a public good and others’ contributions. Depending on what one thinks individuals’ primary motivations are, one would expect an individual’s and others’ contributions to be substitutes or complements. If an individual is primarily motivated by altruism, he or she will care about the consumption of others and therefore contribute less when others or the government already contribute enough. In this case we would expect the two kinds of contributions to be substitutes. If, by contrast, an individual is primarily motivated my social norms such as fairness and reciprocity, he or she will contribute when others do their bit. In that case, we would expect the two kinds of contributions to be complements. Whether they are on average substitutes or complements is an issue that is difficult to determine in laboratory experiments due to the relatively small sample sizes and because the mix of motivations may differ between experiment and field.

A field experiment involving an on-air fundraising campaign for a public radio station found support for the complementarity hypothesis (Shang & Croson 2009). Specifically, if social information is provided about a high contribution of another donor, pledges increase and the likelihood that a donor contributes again next year goes up. The same has been found in a study of voluntary contributions to an information good (a newsletter) on the Internet (Borck et al. 2006). There have also been field studies of alternative provision mechanisms, comparing a voluntary contribution mechanism for a pure public environmental good to a green tariff mechanism, which can be interpreted as an impure public good (Kotchen & Moore 2007).

The substitutes-vs-complements issue has also been investigated in observational studies . That contributions are perfect substitutes, i.e., that government contributions or other private contributions crowd out an individual’s contribution completely is widely rejected. “Complete crowding out” here would mean that every dollar spent on a public good by the government reduces private spending by the same amount. Most studies find either no crowding out, or a merely a small amount. For example, Kingma 1989 and Kingma & McClelland 1995, focusing on public radio, found only a limited amount of crowding out between 12% and 19% of government expenditures on public radio (i.e., one dollar spent by government reduces private contributions by 12–19 cents).

There are a number of historical case studies as well. Ronald Coase’s study of the provision of lighthouses in nineteenth century Britain has already been mentioned. Cowen 1992 contains a number of further case studies that look closely at contracts between bee keepers and apple growers (exchanging the public good pollination) in Washington State, fire protection, leisure and recreation in the United States, species conservation in the Cayman Islands, and education in Great Britain before large-scale state subsidies. In each of these cases, the authors point to private solutions to the public goods problem. A historical review of publicly financed public goods is provided in Desai 2003.

6. The Ethics of Public Goods: Should the Government Pay for Public Goods?

It is sometimes suggested that the standard justification for government funding is attractive because it is based on a minimum of normative assumptions. David Schmidtz, for example, writes that

one of the most attractive features of the public goods argument is the minimal nature of the normative assumptions it must make in order to ground a justification of the state. (Schmidtz 1991: 82)

Indeed, it seems that all that is required is that a government intervention is justified if it brings about a state of affairs that makes everyone better off than under any non-intervention alternative.

However, to reach the conclusion that the government should provide public goods, one requires a number of additional assumptions, all of which are controversial. Standard welfare economics identifies well-being with preference satisfaction, a view that has received much criticism (see entry on well being ; Nussbaum 2001; Hausman et al. 2017: Ch. 8; Reiss 2013: Ch. 12). It is implausible to assume that people always choose what is best for them. People may have inconsistent or unstable preferences such as the smoker who flushes his cigarettes down the toilet in an attempt to quit smoking, just in order to buy a new pack the next day. If people have inconsistent or unstable preferences, it is unclear which consistent set to choose for policy. Uninformed preferences also appear to be a bad basis for policy. If people erroneously believe, say, that there is no external threat, they might prefer less investment in national defence than if they were fully informed. It has been argued that in the political realm, insufficient knowledge is the norm rather than the exception (Somin 1998, Caplan 2007, Somin 2013). It might be extraordinarily difficult to assess the value of a public good to an individual, especially if the public good is a national or global one such as defence, climate change mitigation or basic research.

It has therefore been argued that rational or laundered or informed preferences should provide the basis for policy decisions (e.g., Thaler & Sunstein 2008, Anomaly 2015). But it is not clear that we can straightforwardly assess what citizens would prefer if they were fully rational and informed. There is always the danger that whoever makes that assessment substitutes his or her preferences for the citizens’ or that his or her preferences influence the judgement about what the citizens’ preferences might be (Rizzo & Whitman 2008, 2009).

Assessing the value of a public good in terms of preference satisfaction, actual or rational, involves another problem: the impossibility of interpersonal comparisons. Suppose there are two indivisible public goods A and B , Bob prefers A while Sally prefers B , and Bob and Sally’s combined wealth suffices to buy only either A or B . Under a preference-satisfaction account of welfare, there arguably is no normatively defensible way to compare Bob’s welfare when A is purchased to Sally’s welfare when B is purchased or to compare what Bob would gain by purchasing and what Sally would gain by purchasing B . Dan Hausman has argued that this problem constitutes a reason to abandon the preference-satisfaction account of welfare because any moral theory that assesses situations fully or in part in terms of welfare requires interpersonal comparisons (Hausman 1995).

Standard welfare economics does not make interpersonal comparisons because it asks whether policies constitute a Pareto improvement over the status quo. A policy constitutes a Pareto improvement if and only if it makes some people better off while making no-one worse off. But few policies are as unequivocal as this standard demands. Especially when it comes to the items that are usually discussed under the rubric of public goods, it is rarely if ever the case that no-one is made worse off by the provision.

An alternative that has been introduced in the late 1930s is Hicks-Kaldor improvement (after Hicks 1939 and Kaldor 1939). If there are winners and losers to a policy, it constitutes a Hicks-Kaldor improvement whenever losers can be compensated by winners’ gains. But that losers can be compensated is little consolation unless they actually are compensated, and there is no reason to believe that this always happens (see for instance Rodrik 2017 on the failures to compensate losers from free-trade arrangements).

Characterising the public goods problem as a simple Prisoners’ Dilemma is therefore a significant idealisation. Frequently, the production of a public good will benefit some but make others worse off. Generally speaking, the decision whether to provide a public good or not involves issues of fairness, equality and justice.

Welfare economists tend to ignore such issues because neither Pareto improvements nor Kaldor-Hicks improvements (in their usual interpretations) need information about anything other than preferences. Indeed, standard welfare economics assumes that well-being is all that matters to the evaluation of social outcomes. Most people, however, care also about other values (Sen 1999: Ch. 3; Hausman et al. 2017: Chs 9–12; Reiss 2013: Ch. 14).

One moral issue that has to be addressed even when the item in question is unequivocally a public good to everyone affected by its provision is that of paternalism (see entry on paternalism ). It is by no means obvious that a coercive government intervention, even one that makes everyone better off is justified. Austrian-School economist Hans-Herrmann Hoppe expresses scepticism about the permissibility of such interventions when he writes:

The norm required to reach the above conclusion is this: Whenever one can somehow prove that the production of a particular good or service has a positive effect on someone else but would not be produced at all or would not be produced in a definite quantity or quality unless certain people participated in its financing, then the use of aggressive violence against these persons is allowed, either directly or indirectly with the help of the state, and these persons may be forced to share in the necessary financial burden. (Hoppe 1989: 31)

Infringements on rights are not the only worry we might have. Some public goods might disproportionately benefit those who are already relatively well-off and therefore exacerbate existing inequalities. Some aspects of tertiary education, for instance, might well be public goods but if tertiary education was mainly to the benefit of relatively well-off individuals, government provision could be considered unfair. It is therefore not clear whether the government provision of a public good is morally good, all things considered.

One point that advocates of government provision of public goods often overlook is the information creation and coordinating function of the price system (as described by Hayek 1945). In a market, prices generate information about preferences and scarcities. If a good is wanted by many individuals, it will become more scarce and its price will rise. The increase in price does not only provide a reason for consumers to buy less of it, it also signals to producers to make more and to potential market entrants that the market is lucrative. In the long run, supply should therefore increase and the price fall again. This mechanism does not operate when the government provides the public good and finances it by taxation. If the government builds, say, a lighthouse, it will be difficult to determine how much to invest every year, whether and how to extend or alter the service provided by the good (e.g., by building a second lighthouse nearby), and whether to invest in the development of new technologies.

So far, we have looked at public goods mainly as economic goods that have certain characteristics that give rise to doubts whether they can be provided privately at efficient levels. The government might be justified in engaging in the production of a public good because it corrects a market failure. Such an argument will always be contingent on private actors’ inability to produce the good or enough of it, which is why mechanisms that encourage private provision have been examined at some length in Section 4 above.

Some philosophers have offered arguments to the effect that the government should provide certain goods, independently of whether or not they could be produced in sufficient quantities by the market. Michael Waltzer and Elizabeth Anderson have argued that the sphere of the market should be limited because market norms do not embody certain important values and market exchange may undermine ideals and interests legitimately protected by the state (Walzer 1983, Anderson 1993). According to Anderson, market norms have the following five features: they are impersonal (independent of the relationship and of the other party’s ends), egoistic (the goal is to satisfy one’s personal interests), exclusive (defined as above), want-regarding (as opposed to responsive to objective needs), and oriented to “exit” rather than “voice” (rather than voicing one’s complaint one seeks an alternative) (see Anderson 1993: 143–4).

A good is an economic good according to Anderson if its production, distribution, and enjoyment are properly governed by market norms (Anderson 1993: 146). This contrasts with a number of other kinds of goods, such as gift goods. Friendly gift exchange should be responsive to the personal characteristics of the receiver, and to the relationship itself, rather than “impersonal”. It should also express an understanding of the relationship and not merely satisfy the receiver’s subjective wants. Giving money is often regarded as offensive exactly because it ignores these characteristics of gift goods.

What economists call public goods fall into Anderson’s category of “political goods”. They are characterised by three norms that oppose the respective market norms (Anderson 1993: 159). First, one’s freedom is exercised through voice rather than exit. Second, goods are distributed according to public principles rather than subjective wants. Third, the goods are provided on a non-exclusive basis. About these goods she says:

Some goods can be secured only through a form of democratic provision that is nonexclusive, principle- and need- regarding, and regulated primarily through voice. To attempt to provide these goods through market mechanisms is to undermine our capacity to value and realize ourselves as fraternal democratic citizens. (Anderson 1993: 159)

The examples Anderson discusses in this section of her book—roads, parks, primary and secondary education—are all public goods in the economist’s sense. Providing them privately would undermine the “capacity to value and realize ourselves as fraternal democratic citizens” because exercising freedom by voice would be replaced by exit (e.g., when parents send their kids to schools that approximate their values better than others instead of contributing to curricula through voice), by allowing owners to dictate terms on the basis of their wants instead of using principles such as freedom of speech and association (e.g., when owners of malls suppress speech and political activity they find offensive), and by the ability of owners to exclude non-payers instead of enabling all to meet one another on terms of equality (e.g., in the case of parks).

In a similar vein, Angela Kallhoff argues that some (but not all) public goods provide additional externalities that are essential for the functioning of a democracy (Kallhoff 2011, 2014). Some public goods constitute visible expressions of solidarity and social justice among citizens (“central goods”), some support connectivity and serve as representations of shared interests (“connectivity goods”), and some serve as visible representations of a shared sense of citizenship (“identification goods”). The absence of these goods would undermine the ability of the citizenry to engage in public deliberation and develop a sense of self-determination.

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Public Reconstruction

Case Studies

The makings of a public goods campaign.

Many of the resources and services upon which our lives depend are in private hands, bought or sold in the market for profit. A public goods campaign aims to change that by moving resources or power in the direction of public or community control and benefit, and away from private control and profit. A public goods campaign meets four principles, with a racial justice lens and commitment to antiracism running through each:

• Uses framing that shows the benefit for a broad public or an expansive constituency
• Points to root causes (such as the profit motive), not just symptoms
• Builds a bigger we, bringing more people and constituencies into the struggle by redrawing the lines of who wins, who loses, and who sees themselves in the solution
• Shifts power and resources from private profit to public control

Voting Restoration in Virginia

Virginia organizing, virginia organizing (south hampton roads), the victory.

In 2016, after years of grassroots pressure, Virginia Governor Terry McAuliffe signed an executive action restoring the voting rights of 206,000 returning citizens, then restored these rights individually when the executive action was declared unconstitutional. Virginia Organizing and allies continue to fight for a change in the state constitution to preserve their win.

The Campaign in Virginia

Since 1998, Virginia Organizing has been fighting for automatic restoration and an end to the opaque, tedious process of requesting restoration directly from the governor. As part of the campaign, Virginia Organizing helped members complete the restoration process, often combining this help with base-building and public education — for instance, at events where organizers generated calls and letters to the governor while assisting people with applications.

Virginia Organizing approached voting rights as part of a larger campaign for the rights of returning citizens. The organization led a “ban the box” effort to protect returning citizens when they applied for jobs. In Lynchburg, they successfully defended the right of parents and other family members to enter their children’s public schools. Across these efforts, Virginia Organizing developed relationships with teachers, business owners, city officials, church leaders, and impacted families around that state. Virginia Organizing mobilized these supporters and its base of returning citizens when McAuliffe was elected in 2014 and kept the pressure on.

How Applying Public Goods Principles Strengthened the Fight

• When putting families, colleagues, and directly impacted folks in front of representatives and law-makers, Virginia Organizing brought attention to the community-wide impact of restoring rights to returning citizens.
• During the campaign to restore rights, Virginia Organizing pointed to the systemic cause of the problem : the fact that Virginia’s failure to automatically restore people’s voting rights after they complete supervision is a legacy of Jim Crow, deliberate suppression of the votes of people of color, and an example of institutional racism.
• In local chapters and as a whole, Virginia Organizing engaged a diverse group of community members and organizers, including returning citizens looking for rights, engaged family and friends, as well as employers and neighbors inspired by the fight. Each member of the campaign understood the injustice of this widespread disenfranchisement in their state.

After the Governor’s executive order, Virginia Organizing got the process streamlined to a one-page online application that’s always approved as long as a person meets the criteria. Each Virginia Organizing chapter also does rights restoration work with members, including holding widely-attended know-your-rights events. This victory has created a shift in the balance of power, creating a larger and more equitable voting public, and Virginia Organizing is optimistic about winning a constitutional amendment for automatic restoration in the near future.

Housing Justice for All in New York State

Citizen action of new york & the upstate downstate housing alliance.

In 2019, New York passed a suite of housing justice laws lifting the state ban on rent stabilization, limiting add-on charges for improvements, creating new protections for renters in manufactured home communities, and more. The victory reflects the Housing Justice for All campaign’s statewide consolidation of the power of tenants, unhoused people, and public housing residents. A member of the coordinating committee of the Upstate Downstate Housing Alliance (which leads Housing Justice for All), Citizen Action of New York (CANY) brought in a statewide organizer and leveraged its geographic reach from Buffalo to Binghamton.

The Campaign in New York

In 2018, Democrats took control of the state House and Senate, and housing justice groups saw an opening. But the real estate industry has poured millions into state politics, and CANY and its partners in Housing Justice for All and the Upstate Downstate Housing Alliance knew they’d need a show of force in all corners of the state. This required crafting legislation with both broad and targeted appeal. The result was a nine-bill package framed as universal rent control — a package a broad statewide coalition could unite around and fight for in the face of attempts to peel groups away. For instance, immigrant-led organizations in New York City emphasized limits on add-on charges (a rent control loophole), while removing the ban on rent stabilization was a priority for groups beyond the New York City region.

The campaign applied constant pressure with twice-a-week lobby days and escalating tactics that kept the opposition on its toes. The power of escalation became clear in a pivotal mass day of action, when 3,000 people occupied the state capitol, declaring their unity by chanting “all nine bills.” Ten days later, Governor Cuomo signed legislation including eight of those laws.

• Under the “universal rent control” banner, CANY and other Housing Justice for All partners made clear that tenant protections bring stability to New Yorkers in cities, suburbs, and towns, in apartment buildings and mobile home courts . The campaign also presented the lifting of rent stabilization preemption as an important option for local governments to protect their communities from housing shortages.
• The campaign was explicit about the root cause of the crisis, identifying corporate domination of housing as the culprit. The campaign also framed housing as a human right, something that should not be sold for profit . Instead, the coalition described housing as something that should be guaranteed to everyone.
• Formation of the Upstate Downstate Housing Alliance in 2017 was crucial for the 2019 win. Previously, housing reform had been blocked as a downstate issue. The coalition aligned geographically dispersed groups with different sets of interests around a package that expanded the constituency for reform
• The coalition achieved the largest win in decades, granting millions of New Yorkers increased tenant protections . Affirming public limits on extraction through rent , the victory was hailed as a “ seismic shift ” in the relationship between tenants and landlords and in the balance of power in Albany.

Pushing Medicaid Over the Line in Lee County

In 2018, Virginia passed Medicaid expansion after years of deadlock, bringing health care to 450,000 Virginians. A 110-organization coalition, Healthcare for All Virginians, won the fight with a broad, multiracial constituency that made the case for health care as a public good. Virginia Organizing, a core coalition member, organized in pivotal parts of the state where other groups weren’t organizing, such as the Southside, Southwest, and Shenandoah Valley. 

The Campaign in Lee County

Virginia Organizing’s chapter in Lee County led the fight in Southwest Virginia, once home to a hugely profitable coal industry. The county is represented by Republican Delegate Terry Kilgore, then chair of the Commerce and Labor Committee, the number three spot in House leadership.

In 2013, the Lee County hospital was closed by its private purchaser, citing the state’s refusal to expand Medicaid. Virginia Organizing led the fight to reopen the hospital — bringing in nurses, ambulance drivers, local elected officials, and others — and leveraged the hospital fight publicly in its Medicaid campaign. The hospital fight put Virginia Organizing members in consistent contact with Kilgore to make the case for Medicaid. After the 2017 election, Kilgore came out for Medicaid, and 17 Republican delegates went with him, including delegates in the Southside and Southwest, where Virginia Organizing was active. This broke the legislative logjam.

• Centering the local Medicaid fight on the loss of the hospital, Virginia Organizing showed the community-wide stakes . This underscored how much Medicaid mattered to people’s health and safety, as well as jobs and resources in the community.
• While fighting to reopen the Lee County hospital, Virginia Organizing consistently pointed to a larger, systemic cause of the loss : state lawmakers’s refusal to dedicate resources to Virginians’ health care, letting people get sick rather than expanding Medicaid.
• In Lee County and around the state, Virginia Organizing knitted together a multiracial,  varied constituency for Medicaid — not just Virginia Organizing members across race who needed health care, but also nurses who’d lost their jobs, local elected officials, Black churches and other faith leaders, health care providers, and addiction recovery professionals.
• Thanks to the win, 450,000 more Virginians now get health care through a public program, shifting health care toward public control.

Manufactured Homes Residents Go Up Against Private Equity

In November 2020, the Federal Housing Finance Agency (FHFA) announced new requirements on Fannie Mae and Freddie Mac’s manufactured home community lending, responding to your calls for reform. Under the new rule s, half of Fannie Mae and Freddie Mac’s multi-family loans must go to affordable housing, and to be considered affordable manufactured home communities must be resident-owned-cooperatives, non-profit-owned, or commit to FHFA’s tenant protections. This step in the right direction is a win for MHAction, which is crafting and winning a range of solutions for manufactured home residents seeking to wrest control of their communities back from private equity landlords.

Connecting Manufactured Housing Community Residents around the Country

Manufactured home communities are one of the largest sources of affordable housing, especially in rural and exurban locales. With family ownership of manufactured home communities on the decline, private equity is swooping in. These firms are amassing mobile home community portfolios and siphoning wealth from residents as they do with hospitals, retailers, and other sectors. This means skyrocketing rent paired with neglect on upkeep and maintenance for residents who have title to their non-mobile, manufactured homes but not the land beneath them.

MHAction is building a nationwide, multiracial, primarily women-led base of manufactured home residents in rural and exurban communities in states like Iowa, Florida, Michigan, North Dakota, and elsewhere. Using online and offline organizing (including targeted Facebook ads), MHAction connects people across state lines around shared experiences, often with the same predatory private equity firm, in addition to working deeply in specific communities. The organization’s goal is to unite residents around not just their common interests but also around their shared identity. In this way, they build the foundation for residents to fight for collective solutions for their manufactured home communities (whether in the form of a land trust, cooperative or nonprofit ownership, or state regulation). This style of engagement also allows MHAction to lend its unique voice to broader social, economic, and racial justice issues that range from caregiving to climate change.

How MHAction Is Applying Public Goods Principles

• MHAction grounds its work in the broad value that every family deserves a place to call home. Also, by bringing manufactured home residents into larger fights for tenants’ rights and stable homes, MHAction helps show the broad interests in housing justice across rural, exurban, and urban geographies.
• With its focus on private equity, MHAction draws attention to the contradictions that underlie mobile home communities—the exploitation of the idea of ownership, the corporate owners’ extreme profit-driven business model, and the false idea of mobility when residents are all but trapped.
• Connecting people digitally in far-flung communities, MHAction is doing deliberate work to build relationships and analysis across race, carrying out deep conversations and political education on anti-Black racism, immigrant justice, and more. The aim is to help people find what binds them together as neighbors and manufactured home residents committed to shared values, a sense of community, and hope for justice.
• MHAction wins a range of public goods alternatives to private or profit-driven corporate ownership—all ways of shifting ownership and calling into question corporate control of the land beneath people’s homes.

Our Colleges, Our Future

Communities for our colleges.

Washington state’s community and technical colleges educate 360,000 students a year, nearly half students of color. Yet, even before Covid, the colleges persisted on shoestring budgets, underpaying contingent faculty, overworking staff, and skimping on counseling, advising, and wraparound services for students. When the pandemic hit, lawmakers started talking about slashing funds even more. Communities for Our Colleges pivoted to online organizing and strategies for shifting the conversation away from cuts and toward investment.

Building a Broad Constituency for Community Colleges

The campaign used online outreach to build a team of student leaders from both sides of the Cascades, an important political divide in the state. The campaign then created a fellowship program to lead base-building and drafting of a report sharing students’ recommendations for specific investments. Throughout, the campaign has cultivated relationships with faculty and staff unions (particularly adjuncts), alumni, families, and college presidents. The power of this constellation became clear when the campaign held a first-of-its-kind statewide organizing meeting co-led by students and faculty. In the run-up to the legislative session, Communities for Our Colleges is bringing this broad constituency into conversation with lawmakers, making the case for an investment in community and technical colleges as core institutions that must reflect the values, priorities, and standards of their communities.

Applying a Public Good Framework

• The campaign draws a picture of community colleges’ potential as generators of knowledge, economic equity, and full social and civic participation for different groups across the state — first-generation students, immigrant families, college staff, older students, Black and brown families, and local businesses.
• As the campaign makes clear, the disinvestment in community and technical colleges reflects the growing corporate orientation of public higher education, treating students as consumers, putting the squeeze on faculty and workers, and compounding structural racism.
• Communities for Our Colleges is putting students at the front of a broader campaign that includes faculty, staff, alumni, administrators, and more.
• Communities for Our Colleges is pushing back against the idea that diversity and inclusion alone will equal racial equity. The campaign is calling for full investment to fund comprehensive financial support and wraparound services for students and job quality for faculty and staff.

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Journal of Economic Literature

Global public goods: a survey.

ISSN 0022-0515 (Print) | ISSN 2328-8175 (Online)

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Public Services International The global union federation of workers in public services

Towards a public goods approach for climate finance: the case study of the green climate fund.

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Strengthening quality public services in the Global South should be a key priority ofinternational climate finance. Important lessons can be taken from the COVID-19 pandemic. To protect people from the deadly virus governments of all persuasions have had to take back control of privatised public services and rein in international supply chains designed to maximise profit.

This study aims to assess the degree to which international climate finance strengthens universal quality public services in developing countries. It focuses on the case study of the Green Climate Fund to assess whether the concerns of workers and communities have been heeded.

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Public Goods: A Historical Perspective

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Provides a brief historical survey of the provision of public goods since the Middle Ages, explaining how a long pattern of ‘statist’ provision has over the past fifty years come to be replaced by a changing mixture of state‐private provision. This transformation calls for a revision of public goods theory to bring it up to date with current political realities.

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Public Goods

• Reference work entry
• First Online: 01 January 2018
• pp 10973–10984
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• Agnar Sandmo 1  

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This article provides a mathematical and diagrammatic exposition of the theory of public goods as originally formulated by Paul Samuelson. It describes the extension of the model to take account of the costs of distortionary taxation, and discusses the concept of the marginal cost of public funds. Different types of public goods (such as mixed goods and local and global public goods) are discussed before a survey of the incentive problems related to preference revelation.

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The MDP Procedure for public goods and local strategy proofness

Paul Samuelson’s Contributions to Public Economics

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Sandmo, A. (2018). Public Goods. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_1696

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Market Failures, Public Goods, and Externalities

Definitions and Basics

Definition: Market failure , from Investopedia.com:

Market failure is the economic situation defined by an inefficient distribution of goods and services in the free market. Furthermore, the individual incentives for rational behavior do not lead to rational outcomes for the group. Put another way, each individual makes the correct decision for him/herself, but those prove to be the wrong decisions for the group. In traditional microeconomics, this is shown as a steady state disequilibrium in which the quantity supplied does not equal the quantity demanded….

Externalities , by Bryan Caplan, from the Concise Encyclopedia of Economics

Positive externalities are benefits that are infeasible to charge to provide; negative externalities are costs that are infeasible to charge to not provide. Ordinarily, as Adam Smith explained, selfishness leads markets to produce whatever people want; to get rich, you have to sell what the public is eager to buy. Externalities undermine the social benefits of individual selfishness. If selfish consumers do not have to pay producers for benefits, they will not pay; and if selfish producers are not paid, they will not produce. A valuable product fails to appear. The problem, as David Friedman aptly explains, “is not that one person pays for what someone else gets but that nobody pays and nobody gets, even though the good is worth more than it would cost to produce.”… Research and development is a standard example of a positive externality, air pollution of a negative externality….

Public Goods and Externalities , by Tyler Cowen, from the Concise Encyclopedia of Economics

Most economic arguments for government intervention are based on the idea that the marketplace cannot provide public goods or handle externalities . Public health and welfare programs, education, roads, research and development, national and domestic security, and a clean environment all have been labeled public goods…. Externalities occur when one person’s actions affect another person’s well-being and the relevant costs and benefits are not reflected in market prices. A positive externality arises when my neighbors benefit from my cleaning up my yard. If I cannot charge them for these benefits, I will not clean the yard as often as they would like. (Note that the free-rider problem and positive externalities are two sides of the same coin.) A negative externality arises when one person’s actions harm another. When polluting, factory owners may not consider the costs that pollution imposes on others….

Markets can fail if there are no property rights and negotiation is costly. The Coase Theorem: Ronald H. Coase , biography from the Concise Encyclopedia of Economics

“The Problem of Social Cost,” Coase’s other widely cited article (661 citations between 1966 and 1980), was even more path-breaking. Indeed, it gave rise to the field called law and economics. Economists b.c. (Before Coase) of virtually all political persuasions had accepted British economist Arthur Pigou’s idea that if, say, a cattle rancher’s cows destroy his neighboring farmer’s crops, the government should stop the rancher from letting his cattle roam free or should at least tax him for doing so. Otherwise, believed economists, the cattle would continue to destroy crops because the rancher would have no incentive to stop them. But Coase challenged the accepted view. He pointed out that if the rancher had no legal liability for destroying the farmer’s crops, and if transaction costs were zero, the farmer could come to a mutually beneficial agreement with the rancher under which the farmer paid the rancher to cut back on his herd of cattle. This would happen, argued Coase, if the damage from additional cattle exceeded the rancher’s net returns on these cattle. If for example, the rancher’s net return on a steer was two dollars, then the rancher would accept some amount over two dollars to give up the additional steer. If the steer was doing three dollars’ worth of harm to the crops, then the farmer would be willing to pay the rancher up to three dollars to get rid of the steer. A mutually beneficial bargain would be struck….

Public Goods , by Tyler Cowen, from the Concise Encyclopedia of Economics

Public goods have two distinct aspects: nonexcludability and nonrivalrous consumption. “Nonexcludability” means that the cost of keeping nonpayers from enjoying the benefits of the good or service is prohibitive. If an entrepreneur stages a fireworks show, for example, people can watch the show from their windows or backyards. Because the entrepreneur cannot charge a fee for consumption, the fireworks show may go unproduced, even if demand for the show is strong….

Protectionism , by Jagdish Bhagwati, from the Concise Encyclopedia of Economics

Underlying both cases is the assumption that free markets determine prices and that there are no market failures. But market failures can occur. A market failure arises, for example, when polluters do not have to pay for the pollution they produce. But such market failures or “distortions” can arise from governmental action as well. Thus, governments may distort market prices by, for example, subsidizing production, as European governments have done in aerospace, as many other governments have done in electronics and steel, and as all wealthy countries’ governments do in agriculture. Or governments may protect intellectual property inadequately, leading to underproduction of new knowledge; they may also overprotect it. In such cases, production and trade, guided by distorted prices, will not be efficient….

Market-clearing vs. sticky prices: New Keynesian Economics , by N. Gregory Mankiw, from the Concise Encyclopedia of Economics

The primary disagreement between new classical and new Keynesian economists is over how quickly wages and prices adjust. New classical economists build their macroeconomic theories on the assumption that wages and prices are flexible. They believe that prices “clear” markets—balance supply and demand—by adjusting quickly. New Keynesian economists, however, believe that market-clearing models cannot explain short-run economic fluctuations, and so they advocate models with “sticky” wages and prices . New Keynesian theories rely on this stickiness of wages and prices to explain why involuntary unemployment exists and why monetary policy has such a strong influence on economic activity….

In the News and Examples

Is defense a public good? Defense , from the Concise Encyclopedia of Economics

National defense is a public good . That means two things. First, consumption of the good by one person does not reduce the amount available for others to consume. Thus, all people in a nation must “consume” the same amount of national defense (the defense policy established by the government). Second, the benefits a person derives from a public good do not depend on how much that person contributes toward providing it. Everyone benefits, perhaps in differing amounts, from national defense, including those who do not pay taxes. Once the government organizes the resources for national defense, it necessarily defends all residents against foreign aggressors….

Is education a public good? An Education in Market Failure , by Morgan Rose.

The most fundamental question raised by the school choice controversy is broader than education itself. Before we can confront the subject of the state’s role in education, we first ought to address the proper role and justification for government intervention in market activities in general…. One rationale that economists often use involves externalities and the problems that markets can have in coping with them. It might be clearer to explain what externalities are by first explaining why they sometimes cause problems for markets…

How do we determine when a market has really failed? And Is Market Failure a Sufficient Condition for Government Intervention? by Art Carden and Steven Horwitz.

Is the Occupy Wall Street movement about market failures, government failures, or both? Makers vs. Takers at Occupy Wall Street , a LearnLiberty video at Youtube.

Cathy O’Neil on Wall St and Occupy Wall Street . EconTalk podcast.

Cathy O’Neil, data scientist and blogger at mathbabe.org, talks with EconTalk host Russ Roberts about her journey from Wall Street to Occupy Wall Street. She talks about her experiences on Wall Street that ultimately led her to join the Occupy Wall Street movement. Along the way, the conversation includes a look at the reliability of financial modeling, the role financial models played in the crisis, and the potential for shame to limit dishonest behavior in the financial sector and elsewhere.

Is smoking an example of a market failure? The Economics of Smoking , by Pierre Lemieux

After the economists’ analytical assault, the case for smoking regulations seemed pretty thin in the early 1990s. Then, a new argument was proposed by World Bank economist Howard Barnum. It relied on welfare economics, a field of neoclassical economic theory designed to show that “market failures,” created by external costs or other types of “externalities” (phenomena that bypass the market), prevent free markets from maximizing social welfare. The welfare-economics argument against smoking has since been refined by other economists working with the World Bank, and has provided the intellectual basis for the Bank’s 1999 report on the smoking “epidemic.”… The argument runs as follows. Smoking is not like other consumption choices, and the economic presumption of market efficiency does not apply. This is because, as the World Bank puts it, “many smokers are not fully aware of the high probability of disease and premature death,” and because of the addictive nature of tobacco.

Global warming and market failure. The Economics of Climate Change , by Robert P. Murphy

If the physical science of manmade global warming is correct, then policymakers are confronted with a massive negative externality. When firms or individuals embark on activities that contribute to greater atmospheric concentrations of greenhouse gases, they do not take into account the potentially large harms that their actions impose on others. As Chief Economist of the World Bank Nicholas Stern stated in his famous report, climate change is “the greatest example of market failure we have ever seen.”…

Monopoly and market failure. Monopoly , by George Stigler, from the Concise Encyclopedia of Economics

A famous theorem in economics states that a competitive enterprise economy will produce the largest possible income from a given stock of resources. No real economy meets the exact conditions of the theorem, and all real economies will fall short of the ideal economy–a difference called “market failure.”…

Externalities: When is a Potato Chip not Just a Potato Chip? a LearnLiberty video.

The Failure of Market Failure. Part I. The Problem of Contract Enforcement , by Anthony de Jasay

Received wisdom advances two broad reasons why government is entitled to impose its will on its subjects, and why the subjects owe it obedience, provided its will is exercised according to certain (constitutional) rules. One reason is rooted in production, the other in distribution–the two aspects of social cooperation. Ordinary market mechanisms produce and distribute the national income, but this distribution is disliked by the majority of the subjects (notably because it is ‘too unequal’) and it is for government to redistribute it (making it more equal or bend it in other ways, a function that its partisans prefer to call ‘doing social justice’). However, the market is said to be deficient even at the task of producing the national income in the first place. Government is needed to overcome market failure. A society of rational individuals would grasp this and readily mandate the government to do what was needful (e.g. by taxation, regulation and policing) to put this right….

The Failure of Market Failure. Part II. The Public Goods Dilemma , by Anthony de Jasay

Public goods are freely accessible to all members of a given public, each being able to benefit from it without paying for it. The reason standard theory puts forward for this anomaly is that public goods are by their technical character non-excludable. There is no way to exclude a person from access to such a good if it is produced at all. Examples cited include the defence of the realm, the rule of law, clean air or traffic control. If all can have it without contributing to its cost, nobody will contribute and the good will not be produced. This, in a nutshell, is the public goods dilemma, a form of market failure which requires taxation to overcome it. Its solution lies outside the economic calculus; it belongs to politics….

Moral externalities and markets. Satz on Markets . EconTalk podcast.

Debra Satz, Professor of Philosophy at Stanford University, talks with EconTalk host Russ Roberts about her book, Why Some Things Should Not Be For Sale: The Moral Limits of the Market. Satz argues that some markets are noxious and should not be allowed to operate freely. Topics discussed include organ sales, price spikes after natural disasters, the economic concept of efficiency and utilitarianism. The conversation includes a discussion of the possible limits of political intervention and whether it would be good to allow voters to sell their votes….

Is price gouging justifiable? Munger on John Locke, Prices, and Hurricane Sandy . EconTalk Podcast.

Mike Munger of Duke University talks with EconTalk host Russ Roberts about the gas shortage following Hurricane Sandy and John Locke’s view of the just price. Drawing on a short, obscure essay of Locke’s titled “Venditio,” Munger explores Locke’s views on markets, prices, and morality.

A Little History: Primary Sources and References

John Maynard Keynes , biography from the Concise Encyclopedia of Economics

… Why shouldn’t government, thought Keynes, fill the shoes of business by investing in public works and hiring the unemployed? The General Theory advocated deficit spending during economic downturns to maintain full employment.

Ronald Coase on Externalities, the Firm, and the State of Economics . EconTalk Podcast, May 2012.

Nobel Laureate Ronald Coase of the University of Chicago talks with EconTalk host Russ Roberts about his career, the current state of economics, and the Chinese economy. Coase, born in 1910, reflects on his youth, his two great papers, “The Nature of the Firm” and “The Problem of Social Cost”. At the end of conversation he discusses his new book on China, How China Became Capitalist (co-authored with Ning Wang), and the future of the Chinese and world economies.

Did Markets Fail in Post-Soviet Economies? , a LearnLiberty video.

Prof. Pavel Yakovlev argues that capitalism, to the extent that it has been tried, has improved post-Soviet economies.

Advanced Resources

The Demand and Supply of Public Goods , by James M. Buchanan.

People are observed to demand and to supply certain goods and services through market institutions. They are observed to demand and to supply other goods and services through political institutions. The first are called private goods; the second are called public goods…. Neoclassical economics provides a theory of the demand for and the supply of private goods. But what does “theory” mean in this context? This question can best be answered by examining the things that theory allows us to do. Explanation is the primary function of theory, here as everywhere else. For the private-goods world, economic theory enables us to take up the familiar questions: What goods and services shall be produced? How shall resources be organized to produce them? How shall final goods and services be distributed? Note, however, that theory here does not provide the basis for specific forecasts. Instead, it allows us to develop an explanation of the structure of the system, the inherent logical structure of the decision processes. With its help we understand and explain how such decisions get made, not what particular pattern of outcome is specifically chosen….

The Reason of Rules: Constitutional Political Economy , by Geoffrey Brennan and James M. Buchanan.

Since we are ourselves professional economists, we have been particularly mystified by the reluctance of our profession to adopt what we have called the constitutional perspective. Economists in this century have been greatly concerned with “market failure,” which was the central focus of the theoretical welfare economists that dominated economic thought during the middle decades of the century. This market-failure emphasis extended to both micro- and macro-levels of analysis. Scholars working at either of these levels showed no reluctance in proffering advice to governments on detailed market correctives and macroeconomic management. In retrospect, post-public choice, it seems strange that these scholars so rarely showed a willingness to apply their analytic apparatus to institutions other than the market; they paid almost no attention to politics and political institutions. Once a policy recommendation seemed to have emerged from their market-failure analytics, there was no subsequent analysis aimed at proving that persons in their political roles, as either principals or agents, would somehow behave as the economists’ precepts dictated. Implicitly, economists seemed locked into the presumption that political authority is vested in a group of moral superpersons, whose behavior might be described by an appropriately constrained social welfare function. Initial cursory attempts by a few public-choice pioneers to inject a bit of practical realism into our models of individual behavior in politics were subjected to charges of ideological bias. The myth of the benign despot seems to have considerable staying power, a phenomenon that we examine specifically in Chapter 3….

Related Topics

Supply and Demand, Markets and Prices

Roles of Government

Property Rights

Government Failures, Rent Seeking, and Public Choice

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What Is a Public Good?

• How It Works

Private Goods vs. Public Goods

Public goods around the world, the bottom line.

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What Are Public Goods? Definition, How They Work, and Example

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

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A public good is a commodity or service that every member of a society can use without reducing its availability to all others. Typically, a public good is provided by a government and funded through taxes.

Examples of a public good include a town road, park, or school. National defense is a public good. A public good may also be a basic need such as access to clean air and drinking water.

Key Takeaways

• A public good is the opposite of a private good, which is consumed only by the person or people who can afford to pay for it.
• A public good can be consumed by many people without restricting its availability to others.
• There is always disagreement over what is or should be a public good or a private good.
• These disagreements are decided by government spending priorities.

How Public Goods Work

The main criteria that distinguish a public good are that it must be non-rivalrous and non-excludable. Non-rivalrous means that the goods do not dwindle in supply as more people consume them. Non-excludability means that the good is available to all citizens.

The point of contention is called the free rider problem. A public good is available to all people regardless of whether they have paid for it. Some members of society use the good but are unable or unwilling to help pay for it. People who do not pay taxes are essentially taking a “free ride” provided by those who do pay taxes.

National defense, law enforcement, and clean air and water are all examples of public goods.

The opposite of a public good is a private good , which is both excludable and rivalrous.

Private goods can only be used by one person at a time—a piece of jewelry, for example. In some cases, they are destroyed in the act of using them, such as when a slice of pizza is eaten.

Private goods generally cost money. Most of the goods and services that we consume or use in our everyday lives are private goods. Although they are not subject to the free rider problem, they are also not available to everyone, since not everyone can afford to purchase them.

In some cases, public goods are not fully non-rivalrous and non-excludable. For example, a town swimming pool is a public good, since it can be used by any resident, but using it might involve a nominal fee.

Similarly, some goods are described as “quasi-public” goods because, although they are made available to all, their value can diminish as more people use them. For example, a country’s road system may be available to all its citizens, but the value of those roads declines when they become congested during rush hour.

Every nation makes its own decisions on which goods and services should be considered public goods, and this is reflected in their national budgets.

For example, many argue that national defense is an important public good because the security of the nation benefits all of its citizens.

To that end, many countries invest heavily in their militaries, financing army upkeep, weapons purchases, and research and development (R&D) through public taxation. In the United States, for example, the Department of Defense (DoD) has a budget of $1.52 trillion, equal to 12.8% of the total federal budget for the 2023 fiscal year.

Many countries treat essential services such as healthcare and education as a type of public good. Taxpayer-funded healthcare is provided by nations including Canada, the United Kingdom, France, Germany, Italy, and Israel.

Government investments in public education have grown tremendously since the 1950s. According to Our World in Data, the percentage of the world’s population that has received at least some basic education has grown from about 49% in 1950 to more than 86% in 2020 (the most recently available data).

Advocates for this kind of government spending argue that its economic and social benefits significantly outweigh its costs, pointing to outcomes such as improved workforce participation, higher-skilled domestic industries, and reduced rates of poverty over the medium to long term. Critics argue that it poses a burden on taxpayers and that goods can be more efficiently provided by the private sector.

What Counts as a Public Good?

A public good is any product or service that is available to all residents of a society, such as national defense, police and fire services, clean air, and drinking water.

What Are the Main Differences Between Private and Public Goods?

A private good is consumed exclusively by one person. Most often, there is a cost associated with it that prohibits its use by some others. A private good is available to all. One person’s use of it does not prevent others from using it.

What Is a Quasi-Public Good?

Quasi-public goods have elements of both public and private goods. A public bridge is available to all but loses some of its value when it becomes congested during rush hour. A public museum is open to all, and may even receive some public funds, but it may still charge an entrance fee to adequately finance its operation.

A public good is a commodity or service that every member of a society can use without exhausting the supply of it that is available to others. National defense, effective policing, clean air, and public education are all examples of public goods.

Private goods, unlike public goods, are inherently scarce and become more scarce as people consume them.

USAspending. “ Department of Defense (DOD) .”

New York State Department of Health. “ Foreign Countries with Universal Healthcare .”

Bonneau, Cécile, via Paris School of Economics. “ The Concentration of Educational Investment in the U.S. (1970–2018), with a Comparison to France ,” Page 15 (Page 19 of PDF).

Ritchie, Hannah et al., via Our World in Data. “ The Evolution of Education Outcomes .”

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"Rs 5 Crore To Red Cross": Bail For 4 In Coaching Centre Deaths Case

The unprecedented bail condition seeks to deter people from committing the same or similar offence. the bail will be in effect till january 30, 2025.

Three IAS aspirants died on July 27 after a surge in rainwater flooded coaching centre basement

Four co-owners of a basement in a central Delhi building used as a coaching centre where three civil service aspirants drowned in rainwater have been granted bail by the Delhi High Court. However, the four must deposit Rs 5 crore with the Red Cross for the bail to be applicable to them, the court said.

The unprecedented bail condition seeks to deter people from committing the same or similar offence. The bail will be in effect till January 30, 2025.

The court asked the Delhi Lieutenant Governor to form a committee under the supervision of a retired high court judge to ensure that no coaching centres are run from basements in the national capital.

Justice Dinesh Kumar Sharma of the Delhi High Court said the conduct of the co-owners is "unpardonable" and an "act of greed". Justice Sharma said the authorities must designate a place in Delhi where coaching centres can operate.

Three Indian Administrative Service (IAS) aspirants - Shreya Yadav, 25; Tanya Soni, 25, and Nevin Delvin, 24 - died on July 27 after a sudden surge in rainwater flooded the basement of a building in central Delhi's Old Rajinder Nagar, where Rau's IAS Study Circle ran a coaching centre.

The co-owners of the basement -- Parvinder Singh, Tajinder Singh, Harvinder Singh, and Sarbjit Singh -- sought bail on the grounds that they were simply the landlords of the basement, which was rented out to the coaching centre, and so they have no link with the incident.

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The Central Bureau of Investigation (CBI) opposed the bail application, saying the probe was in an initial stage and the accused should not be given relief until independent witnesses are examined.

The case is being investigated under the new criminal law Bharatiya Nyaya Sanhita (BNS), including Section 105 (culpable homicide not amounting to murder), after it was transferred from Delhi Police to the CBI on the high court's order.

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