There are two concepts that make a public good – ‘non-rivalrous consumption’ and ‘nonexcludability’. Non-rivalrous consumption occurs when my consumption of a good does
not prevent you from consuming the good. A TV program is a non-rivalrous good: if I
watch it, this does not prevent you watching it. Ownership of the TV set on the other
hand is rivalrous. If I own it, you can’t also own it. Non-excludability on the other hand
relates to whether it is possible to control access to the good and thus to charge for it. The
TV program could be scrambled so that only those who buy a de-coder can watch it.
The point about public goods is that the properties of non-rivalrous consumption’ and
‘non-excludability’ lead to the market under-providing the goods.
Some economists argue that ways can be found to make virtually any good ‘excludable’.
They therefore suggest public goods need not exist. They are missing a critical point.
Either non-rivalrous consumption or non-excludability’ leads to market under-provision.
While the two often go together, it is disingenuous to argue that you need both to
establish a ‘public good’. It may be possible to find a harbormaster who will pay you to
operate a lighthouse1, the fact remains that left to the free market, lighthouses are likely
to be under-supplied.
A strict interpretation of the definition of a public good would exclude roads and public
transport. Yet it can be helpful to think of them in terms of public goods. Both have
public goods characteristics at low levels of utilization because they provide nonrivalrous consumption. Using the highway or getting on a bus does not prevent someone
else from doing likewise. There may be a delay cost imposed on other users, but it is
normally small. Roads also provide challenges in terms of excludability. However when
utilization approaches the capacity of the highway or the bus, my use prevents your use.
The facility is acting more like a private good. If demand increases further, the facility
acts like a public bad. Actions by each individual increase the cost for everyone by more
than the benefit to the marginal individual.
On this definition, CDs, DVDs and computer programs are public goods. Global welfare
would be greater if they were freely available. Pirates facilitate this and thus should be
encouraged. The alternative of enforcing excludability through copyright laws reduces
welfare. But if there was no copyright protection, there would be no incentive for the film
producers, artists or developers.
Some would argue that copyright does little to encourage production. In fact by allowing
excludability for what are public goods, we enable rewards to significantly exceed effort
and create monopolies that stifle new development. Would Bill Gates have put less effort
into developing Microsoft if he knew he would only be the tenth richest person? Would
there be less blockbuster movies if stars were not paid $30 million per performance?
Lighthouses are a common example of a ‘public good’ in economic texts but as Ronald Coarse pointed
out, early lighthouses were provided by private investors who sought payment from nearby port companies,
not from ship owners.
1
Ron writes
"There are two concepts that make a public good – ‘non-rivalrous consumption’ and ‘nonexcludability’."
So that defines a public good.
"While the two often go together, it is disingenuous to argue that you need both to
establish a ‘public good’."
Whoa! You are redefining a public good. Can't do that.
So, what do you want to be a public good? It seems your criterion is that a public good is a
good that is underprovided. That could be a good with low marginal costs of production. So
the term public good would not be helpful.
Public goods have long been vexed. Is the term useful? Yes, if we need a shorthand way of
referring to goods that are non-rivalrous and non-excludable. Beyond that.... well....
A public good is a prime candidate for public provision. Your roads example highlights that.
You contrast public good characteristics at low flows with the characterists of private
goods at high flows. But non-excludability is all that is needed to argue for public provision
(since non-excludability implies difficulty in collecting charges).
The mystery is why non-rivalrous consumption enters the frame. If anything, it diminishes
the effect of non-excludability rather than magnifying it. For example radio programmes
are non-rivalrous. You produce the product once... not again and again, for each and every
customer. If the cost of producing it once is not too high then the non-excludability may not
matter. Enough people with pay a fee to meet costs.
My response
Coarse argued that there are no public goods.
So I was looking at the concept not just the definition. And I think that you hit it on the head when
you say
A public good is a prime candidate for public provision.
Is that a statement or a definition of a public good? Consider it for now as a definition. I think it
would have be what the person who first coined the term had in mind. What makes a good a
prime candidate? Non-excludability means it produces benefits that cannot be captured by the
market. Certainly that is then a good criterion. Non-rivalrous consumption means that commercial
provision will charge much more than the marginal cost, resulting in under consumption. Both
these 'attributes' lead the unfettered market to provide less benefits than would occur if
production and pricing were set optimally.
It seems your criterion is that a public good is a good that is underprovided. That could be
a good with low marginal costs of production. So the term public good would not be helpful.
Well I think you are right. I do think that in concept, a public good is a good that the market
underprovides. And if its because its a good with low marginal costs of production, why is that
unhelpful?
Going back to Coarse, it seems to me that treating the definition as an absolute is not helpful.
There are no public goods. End of story. But surely a good that is excludable, but at a high cost or
is rivalrous, but with a very low marginal cost does require recognition. What do we call it?
I ask this in the context of pirate music and software downloads. Our State is moving
(ineffectually, but thats another story) to enforce rivalrous consumption on goods that are
essentially non-rivalrous in nature - and which also have very low marginal costs of production. Of
Coarse they are not public goods are they? And if we didn't force people to pay well in excess of
the marginal cost we would have the problem that there would be no software producers or
bands? Well no incredibly rich ones anyway.