Public goods

A public good is a product that one individual can consume without reducing its availability to others and from which no one is deprived.

Examples: national defence, sewer systems, and lighthouses.

Public goods are non-excludable

Public goods are non-excludable: once the good has been provided for one consumer, stopping all other consumers from benefitting from the good is impossible.


Public goods are non-rival.

As more and more people consume the good, the benefit to those already consuming the product will not be diminished. Streetlights for example.

The free-rider problem

The free-rider problem occurs when it is not possible to exclude other people from consuming a good that someone has bought.

The free market fails to provide public goods such as defence or street lightning.

This is because they would not be able to supply them for profit due to their characteristics:

non-excludability and
non-rivalry.

This is called the free-rider problem. Because public goods are non-excludable, it is costly or impossible for one user to prevent others from it.

Example

If I spend money erecting a flood-control dam to protect my house, my neighbours will also be protected by the dam. I cannot prevent them from enjoying the benefits of my expenditure.