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It’s For The Public Good December 6, 2012

Posted by tomflesher in Micro, Teaching.
Tags: , , , , , ,

There are several types of goods in economics: private goods, public goods, club goods, and common goods. What defines which category a good will fall into?

The category can be determined knowing two things: Is the good rival? Is it excludable?

If a good is rival, one person using it prevents someone else from using it. This is a bit of a weird concept, since air can only be breathed by one person at a time, but air is so abundant as to be nonrival. Air in a SCUBA tank, though, would be rival, since only one person can breathe from it at a time. If a good is excludable, you can prevent someone from using the good if you don’t want them to. My apartment is excludable because I have a lock on the door.

Private goods are rival and excludable. Just about anything you can think of going to a store and buying is a private good. My TI-36X Pro calculator is rival (if you’re using it, I can’t) and it’s excludable (if I don’t want you to use it, I’ll just put it in my pocket). Private goods have some interesting properties and merit further discussion.

Public goods are defined as goods that are nonrival and nonexcludable. The classic example of a public good is military defense. If the Army exists and prevents other countries from invading the United States, then there’s no way to keep me from benefiting from that defense that doesn’t also prevent someone else (e.g., my no-good brother) from benefiting (so defense is nonexcludable). Similarly, defending the United States is nonrival because the fact that I’m defended doesn’t have any effect on how defended someone else is. I don’t use up military defense, so it doesn’t (in the simplest case) cost anything to defend my neighbor if I’m already being defended.

Club goods are excludable but nonrival. My landlord’s wireless internet connection is a club good. It’s excludable, because there’s a password on it; it’s nonrival, though, because up to a certain point it doesn’t matter how many people are connected to the network. My enjoyment of the internet doesn’t depend on whether my wife is online or not. (It would take a whole bunch of people, enough to cause congestion, to make my internet too slow to use.)

Common goods are pretty interesting, because there’s an intuitive concept called the tragedy of the commons. Common goods are rival, but nonexcludable. The classic example here is a meadow where you graze your sheep. Every one of us can use the meadow, since it’s public property, but if I graze my sheep here, they eat some of the grass and there’s less for your sheep. It’s in both of our interests  to conserve the meadow, but it’s also in both of our interests to cheat and consume as much as we want to. Common goods tend to get used up.

What goods seem to straddle the line between two of these categories, and how do you think that confusion can be resolved?



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