Public Goods

- Public goods are goods and services that are non-rivalrous and non-excludable

- Non-rivalrous

- Consumption of the good by additional consumers does not diminish the ability of other to enjoy said good

- Non-excludable

- Once the good is provided, producers cannot exclude anyone from enjoying and benefiting from the good, even if they have not paid

- Quasi-public good

- Exhibits characteristics of both private and public goods

- E.g. Crowded public beach

___

- Public Goods

- Private goods are rivalrous and excludable

- Direct

___

- Free-rider problem-

- The non-excludability characteristic of public goods prevent profit-maximization firms from providing such goods since they can't charge for it

- This is where the public can enjoy the benefits of a good without paying for it

- Under-allocation of resources towards the production of goods

- Gov Intervention

- To prevent underproduction, government provides public goods through direct provision and contracting out to private sector

- Direct Provision

- Government directly supplies certain goods and services to public

- Necessary because

- under-provision of public goods or no provision in free market

- Allows large scale production and economies of scales

- Improves the well-being of individuals and societies

- Arguments against

- Significant cost, which is funded through taxation

- Opportunity cost issue arises

- Gov failure in intervening in markets as they don't know what is best for society

- Contracting out

- Gov pays a specialist private producer with the expertise to produce the public good

- Advantages

- Competitive tendering process to encourage lower costs and higher quality

- Access to specialist knowledge, skills, and capital in the private sector

- Disadvantages

- Gov loses a degree of control

- Cost of contracting may be greater than direct provision

- Heavily dependent on quality of work done by firm

- Additional monitoring costs