Public and Private Goods

Tragedy of the Common

concept in economics that describes how individuals, acting independently and rationally according to their self-interest, can collectively deplete a shared resource, even when it's clear that it's not in anyone's long-term interest for this to happen

Real-World Example: Overfishing

Imagine a public fishing pond accessible to all. Each fisher aims to catch as many fish as possible to maximize personal gain. However, if every fisher does this, the fish population diminishes rapidly, leading to the depletion of the resource. This scenario exemplifies the tragedy of the commons, where individual incentives lead to collective ruin

Why It Happens

The tragedy arises because:​

• Non-Excludability: It's challenging to prevent individuals from accessing the resource

• Rivalry in Consumption: One person's use of the resource reduces its availability for others

These characteristics lead to overuse and eventual depletion of the resource

Potential Solutions

To mitigate the tragedy of the commons, several strategies can be employed:

• Regulation: Implementing rules that limit usage, such as fishing quotas or seasonal restrictions

• Privatization: Assigning property rights to individuals or groups to manage the resource sustainably

• Community Management: Local communities collaboratively manage resources, establishing norms and agreements to ensure sustainable use

These solutions aim to align individual incentives with the collective good, promoting sustainable resource management

Rival and Excludable Goods

Key Concepts

• Excludability: A good is excludable if it's possible to prevent someone from accessing it without payment. For example, a movie ticket is excludable because only those who pay can watch the movie

• Rivalry: A good is rivalrous if one person's consumption of it diminishes the ability of others to consume the same good. For instance, a slice of pizza is rivalrous—if you eat it, others can't

Classification of Goods

By evaluating goods based on these two characteristics, we can classify them into four categories:

1. Private Goods (Excludable & Rivalrous):

   • Examples: Food, clothing, cars

2. Public Goods (Non-Excludable & Non-Rivalrous):

   • Examples: National defense, public parks

3. Common Resources (Non-Excludable & Rivalrous):

   • Examples: Fisheries, public pastures

4. Club Goods (Excludable & Non-Rivalrous):

   • Examples: Subscription-based streaming services, private parks