2.9 Public goods

What is a public good?

goods that bring significant social benefits to society but cannot be provided by the free market

→ They are a market failure, which means the government needs to intervene in the market to ensure they are provided.

→ We also consider them merit goods because they bring significant social benefits.

Public goods two characteristics

1. Non-rivalrous

2. Non-excludable

What does it mean when a public good is Non-rivalrous ?

One persons use of the good does not reduce its availability for others.

The marginal cost of providing it to one more person is zero

What does it mean when a public good is Non-excludable ?

no one can be prevented from using the good even if they don’t play for it

→ you cannot stop someone from benefiting from a streetlight

why are public goods an example of market failure in a pure free market?

In a pure free market (with no government intervention), public goods wouldn’t be produced due to the free-rider problem.

Their non-excludable nature mean people benefit without paying, so firms have no incentive to provide them - leading to market failure

How does the government manage public goods through state provision?

The government uses tax revenue to fund and supply public goods directly, overcoming the free rider problem and ensuring access to all

What is state provision ?

when the government provides goods or services directly using tax revenue often to snare access to correct market failure

Advantages of state provision

1. ensures universal access to essential goods/services

2. helps correct market failure (from public/merit goods)

3. funded by tax revenue, not ability to pay

4. promotes equity and fairness

5. can focus on public interest not profit

Disadvantages of state provision

1. may lead to allocative inefficiency or overprovison (provide more than needed)

2. lack of profit motive can reduce efficiency or innovation

3. can be costly for the government (high tax burden)

4. risk of bureaucracy and waste

5. may not respond well to consumer preferences

Quasi-public good

goods that are not fully public, but still have enough public benefit that the government t may choose to provide or support them.

→ even though they could be provided privately the government might step in with state provision or subsidies to ensure equitable access and avoid overuse or market failure

How can the private sector be involved in the provision of public goods?

Governments can fund public goods but contract private sector organisations to manage them—especially for quasi-public goods like street cleaning, where private businesses are paid to provide the service.

 Advantages of private sector provision

1. Less political influence in decison-making

2. more efficient operational management than government et provision

3. can improve innovation and responsiveness to consumer needs

4. encourages competition which can improve quality and reduce costs

Disadvantages of private sector provision

1. the government still bears setup and opportunity costs

2. firms may prioritise profit over public welfare

3. risk of cost cutting that reduces quality

4. difficult to ensure provision meets the socially efficient level

Provision

the act of supplying or making available goods or services to people