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External benefits

Beneficial spillovers to a third party or parties who did not purchase the good or service that provided the externalities.

Free rider

Individuals who want others to pay for a public good while planning to use it themselves, potentially preventing the good from being provided.

Intellectual property

The body of law that includes patents, trademarks, copyrights, and trade secret law, protecting inventors' rights to produce and sell their inventions.

Nonexcludable

A characteristic of a good that makes it costly or impossible to exclude someone from using it, complicating charging for it.

Nonrivalrous

A property of a good that allows multiple individuals to use it simultaneously without diminishing its availability to others.

Positive externalities

Beneficial spillovers to third parties resulting from an economic activity.

Private benefits

The advantages that an individual receives from consuming a good or service, or the benefits a company captures from its inventions.

Private rates of return

Estimated rates of return that primarily benefit an individual, such as interest earned on a savings account.

Public good

A good that is both nonexcludable and non-rival, making it challenging for market producers to sell to individual consumers.

Social benefits

The total of private benefits and external benefits derived from an economic activity.

Social rate of return

Estimated rates of return that primarily benefit society, exemplified by providing free education.

Underinvestment in innovation

The phenomenon where the private sector invests less in innovation due to the ease of copying inventions, reducing the incentive for further research and development.

Government encouragement of innovation

The role of public policy in balancing incentives for inventors, including limited patents and various tools to increase returns on new technology.

Characteristics of public goods

The defining traits of public goods, which are nonexcludable and non-rival, complicating their production in markets.

Overcoming the free rider problem

Strategies such as government actions, social pressures, and market solutions to ensure users of public goods contribute to their costs.