In the most recent decades, there have been major alterations in what is viewed and treated as private
and what is considered and treated as public. Markets have been permitted to merge across national
borders and develop into new product categories as a result of economic liberalization, technological
progress, and privatization efforts. In addition to this, an ever-increasing number of privately held
companies are opting to become publicly traded companies by offering their shares on public stock
exchanges. As a result, the purpose of this essay seeks to examine the concept of private versus public
goods through the use of example and illustrations. Furthermore, show how they can enhance
development in Zambia. This essay's outline begins with defining critical terms before delving into the
principal body. A conclusion based on the discussion presented in the essay needs to be presented in
the final paragraph.
Private goods are those that need a fee to obtain, and when one is used by another, the resource is
effectively depleted. Therefore, if two people are competing for the same good and one person's
consumption of it prevents the other from using it, the good in question is a private good. Private
commodities include things like restaurant meals, grocery shopping, travel, and cell phones. In this
sense, a private good is anything that can only be used or eaten by one person at a time. For instance,
many everyday things fall under this category because they are not available to anyone who does not
already have access to them. Consumables like food and toilet paper are two examples that are
essentially destroyed or rendered useless for their intended use after usage; both are also regarded as
private commodities. In a free market economy, nonpublic goods make up the majority of consumer
purchases, and supply and demand helps determine their prices. Pure private goods are excludable and
rivalrous due to both the ability of producers to exclude some customers based on their ability or
willingness to pay as well as the reality that one person's use of a commodity impacts the amount
accessible for consumption by another. In reality, the characteristics of private products are binary:
either they are excludable or rivalrous (Bailey, 1995).
Some goods and services will always be provided inefficiently because of market imperfections
brought on by a lack of excludability and competition. Externalities and spillover effects can also result
in inefficiencies in the creation and consumption of private goods. When a good or service is viewed
as having a "positive externality" by those who benefit from its creation and use but are not directly
involved in a market transaction. For instance, Zambias education makes people more knowledgeable
and productive citizens, which benefits people both personally and collectively in a variety of ways.
Zambia Private markets would underperform in the presence of such favorable externalities because
the firm's production costs are inflated and the profits are understated (Chen, 2021). On the other side,
negative externalities happen when producing or using a product places a hardship on a non-
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participant. Air pollution and noise pollution are two examples of negative externalities. Private
markets will overproduce when there are negative externalities because the firm's production costs are
overstated and its revenues are inflated (Sandler, 2012).
Due to the nature of private property, numerous issues of justice and fairness arise. It is undesirable to
rely only on private markets for items like food and clean water, especially in countries where income
is unequally distributed, as excludability means that different people will receive variable quantities of
a good or service. In a similar vein, if health care is provided as a private good, the underprivileged
and those without health insurance might not be able to purchase it. Many people consider access to
health care to be a fundamental human right, and as such, they frequently support the government
providing it. These conflicts show the necessity for public policy in determining which private assets
should be designated as public and serve as illustrations of the tension that can develop when
attempting to strike a balance between the requirements of the majority and the interests of the minority
(Chen, 2021).
A good or service that is accessible to all members of society is known as a public good. Governments
often offer these kinds of services, and taxes pay for them. Water and fresh air are examples of
necessities that fall under the category of public goods (Fernando, 2022).
Both their non-excludability and their scalability set public goods apart (positive or negative
externalities). Nobody can consciously choose to shirk their obligation. From a business standpoint, it
is wasteful and unworkable to base a pricing model on a service that is only accessible to a small
number of users. A good becomes accessible to anybody who wants some of it when the ability to
privately possess it is lost (Hindriks & Myles, 2006).
The second situation is non-rivalry, which happens when everyone gains from a product even though
they did not contribute to its creation. Because they don't care, they lack the motivation to contribute
to the common good in this situation. Theoretically, it is impossible to deny anyone access to
something that benefits certain people without also granting those benefits to the rest of the populace.
This concept was first put forth by economist Paul Samuelson in 1954: individual spending has no
bearing on other people's consumption (Sandler, 2012).
An excellent example of this is Zambia's national defense. Once the government decides to spend
billions of Kwacha on national defense, everyone residing in the country, whether legally or illegally,
will benefit from the freedom of being protected and homeland security, regardless of the level of
defense they need or how much they value it. Additionally, the majority of things have finite quantities;
once they're gone, none more will be made. A public good, on the other hand, has zero marginal cost
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of production, allowing ever-increasing numbers of people to profit from it throughout time. Public
goods include things like a mountain view, clean air, radio waves, and law enforcement (Smith, 2010).
In the area of study and research, there is a second occurrence. In a more complex sense, education
and research are public goods. It's easy to discourage students from attending school because a degree
in engineering from a prominent university like the University of Zambia or Copperlbet is in high
demand. Regardless of how much they (or the public) invest in their own education, individuals benefit
from a more educated population in a non-excludable and non-rivalrous way. An educated culture
makes it simpler for businesses to succeed, and a healthy economy helps everyone, not just those with
a high level of education. A thriving economy makes it difficult to exclude others, because one person's
gain is not lessened by another's. Scientific ideas also fall under the rubric of public goods (Boldrin &
Levine, 2008). Once a newly formed idea (such a scientific theory) has been developed, it cannot be
stopped from being profitable (unless a patent protects the concept; see below), and this profit is nonrivalrous. It is essential to recognize the distinction between a concept and its physical manifestation.
For instance, while specific steam engines are excludable and competitive, the notion of a steam engine
is a public asset (Chen, 2021).
The most severe example of externalities is frequently regarded as being public benefits. Here, the
question is whether or whether the public good produces externalities that are positive (like research
and development) or negative (like criminality) (e.g., pollution). The issue is that every person has the
power to alter the course of history, for better or worse. This cannot be avoided. Because of this, those
who are harmed by pollution cannot demand that polluters make up for it, and people who profit from
a positive externality shouldn't be taxed. Two classical economists, David Hume and Adam Smith,
both argued that government action is required to supply products and services with societal benefits.
These services cannot be adequately provided by volunteer groups or individual efforts. The
government is supposed to correct market inefficiency. However, it has been suggested that public
benefits result in waste and unexpected effects (Batina & Ihori, T, 2005).
This is due to the possibility of market allocation inefficiencies when non-rivalry and non-excludability
exist. The free-rider conundrum is a significant problem involving public goods. Free riders utilize a
service without contributing anything to it, which can make it less available for other users. This is
when people abuse a service. The risk lies in the fact that no one wants to supply the good because
they can all free ride, therefore dependency develops as one person waits for the other to produce the
good. As a result, in a free market economy, the good from which society benefits may be delivered
insufficiently or not at all. This is somewhat disputed because free riding can only be considered an
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economic problem when it results in Pareto inefficiency and either no production of public goods or
production of those goods insufficiently (Chen, 2021).
For instance, in Zambia, the National Health Service is mostly provided by the government and funded
by regular taxation. Healthcare is similar to other public goods in that it has a low marginal cost when
compared to the entire cost of providing care for a patient. Therefore, everyone has benefited from
free, universal public healthcare, whether or not they have contributed to the system. But because it is
challenging to stop someone from utilizing healthcare while paying taxes, this has led to the free rider
issue. Excluding those who make no financial or other contributions to healthcare would be extremely
expensive and unpopular, therefore they would still get free care. As a result of rising demand and
falling supply, the market may become unbalanced (Sandler, 2012).
A great public choice mechanism that encourages people to be upfront about their desire for spending
is known as "demand transparency." Demand revelation has the drawback that if everyone uses the
same item, it is hard to know how much of each person's preferred good they want. As a result,
regardless of where and by whom a public good is produced, the issue of demand revelation still exists.
By offering incorrect information, people may unintentionally mislead others or waste public resources
while trying to enhance their own well-being through demand disclosure (Batina, Ihori, 2005).
As a result, the market fails because customers' understanding of the value, quality, and other attributes
of the goods they receive is incomplete and inaccurate, and society as a whole is unable to accurately
reflect their true preferences. According to economist Paul Samuelson, consumers are willing to pay a
range of prices for public goods of varied degrees of quality. As a result, the overall market demand
for public goods is determined by vertically adding up each individual demand curve. The market
demand can be used to determine how much consumers are willing to pay overall for each attainable
level of public sound output. The allocation is efficient if the marginal cost of generating the public
benefit is lower than the total willingness to pay for it. If and only if the marginal benefits of the public
goods provided match the marginal costs of providing those benefits, then the allocation is considered
optimal (Hindriks & Myles, 2006).
The first line of defense against the free rider problem may be coercion and general taxes. Free riders
can no longer use public services if there are mandatory costs. By regularly enforcing the collection of
taxes, the government often participates in this process. Only when everyone is required to contribute
will the public good be funded, putting an end to free riding. However, it may be argued that some
individuals may really be in a worse situation now that the products are no longer given away for free.
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However, it is believed that the only solution to the public good problem is coercive force (Fernando,
2022).
The second choice is called the Coase Theorem, after the well-known economist Ronald Coase. He
supported a system in which those who would benefit from a good public good may bargain with one
another to come to a mutually beneficial agreement. Since there would be no transaction costs and at
least one party would be the owner of the good, the assumption was made. He reasoned that with
decreased transaction costs, it would be simpler for those who benefited from the public good to find
one another and secure adequate output(ibid).
In conclusion, Private and public goods are separated. Individuals and efficient markets can allocate
private goods. Pure public goods, which are nonrival and non-excludable, cannot be divided. Because
of these factors, public goods require a mechanism that prioritizes public interest over profit. Private
and public goods aren't as distinct as once thought. Natural resources are rivalrous and non-excludable
(common-pool goods), while toll roads and cable TV are non-rivalrous and excludable (club goods).
In most cases, the government provides public goods requiring collective action. Even limitedgovernment scholars support state provision of public goods (such as a legal system and defense).
Minimal-state theorists focus on public goods because the free market can't meet Pareto optimum.
Because private companies cannot profitably provide some public goods (like national defense)
because of the difficulty of imposing payment to recover the cost, or because the total costs and benefits
to society cannot be incorporated into the market price of the good, governments are often the only
viable providers (externalities). Failures and externalities justify government intervention. The state
should address market imperfections and provide public goods the market can't. In order to provide
public goods without excluding nonpayers, society needs a public agent. Private companies aren't
willing to invest in public goods unless they can make a profit. As they are socially valuable, the public
sector must provide public goods.
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References
Bailey, S, J. (1995). Public sector economics: Theory, policy and Practice. New York: Mcmillan .
Batina, R, G., & Ihori, T,. (2005). Public goods: Theories and Evidence .
Chen, J. (2021, January 03). Private Good. Retrieved from Investopedia:
https://www.investopedia.com/terms/p/privategood.asp#:~:text=A%20private%20good%20is%20the,be%20consumed%20at%20no%20cos
t.
Fernando, J. (2022, March 20). Public Good. Retrieved from Investopedia:
https://www.investopedia.com/terms/p/public-good.asp
Hindriks, J., & Myles, G. D. (2006). Intermediate public economics. Cambridge, MA: MIT Press.
Sandler, T. (2012). Collective action: Theory and applications. Ann Arbor: University of Michigan
Press.
Smith, A. (2010). The theory of moral sentiments. New York: Penguin Classics.
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