Last Updated on November 23, 2020 by admin
A public good, are goods that are both non-excludable and non-rival. There are many examples of these types of goods, including: national defense, law enforcement, lighthouses, disease prevention, public sanitation, scientific research, broadcast television. These types of goods are often provided via government, but not necessarily. In the case of broadcast television, we have both: Commercial television and Public television. Note that, Social goods are defined as public goods that could be delivered as private goods, but are usually delivered by the government for various reasons, including social policy, and funded via public funds like taxes.
Free Rider Problem Explained
The free-rider problem occurs when those who benefit from resources, goods, or services do not pay for them, which results in an under provision of those goods or services. For example, a free-rider may frequently ask for available parking lots (public goods) from the ones who have already paid for them, in order to benefit from free parking. At the end of the day, one may see that the free-rider have used the parking even more than the others without paying a single penny. The free-rider problem is the question of how to limit free riding and its negative effects in these situations. The freerider problem may occur when property rights are not clearly defined and imposed.The free-rider problem is common with goods which are non-excludable, including public goods and situations of the Tragedy of the Commons.
It is good to reduce our production of landfill rubbish. However, if one person in a city of five million produces less rubbish, it makes little difference. There is an incentive to freeride on efforts of other people to recycle and make less effort yourself. In other words, we free ride on the efforts of others to recycle. Clean a common kitchen area. It would be good if we all contributed to cleaning the kitchen but there is a temptation to leave for one person who will do it all for us 46. A free rider problem is also said to occur when there is overconsumption of shared resources: This is also known as the tragedy of the commons. For example, a fisherman may take a high catch and free ride on other fishermen who are more concerned to preserve sustainable fish stocks.
Tax and government provision :- One solution is to treat them anybeneficiaries as one consumer and then divide the cost equally. For example, UK national defense costs £31bn. This results in higher taxes for UK taxpayers. Therefore the cost of national defense is paid indirectly by UK taxpayers. This ensures everyone who benefits from the service pays towards the cost. Some may dislike this approach e.g. some anti-war protesters have tried to withhold a certain % of their tax arguing they don‘t want to make contributions to illegal wars. But, most people accept paying taxes.Austrian economists may criticize this approach arguing there is no guarantee the government knows consumer preferences and coercive action to make everyone pay and provide the good could lead to goods society does not really need.
Appealing to people’s altruism:- For some goods like visiting
Make a public good private : – A beautiful garden could be
Legislation : To deal with the free rider problem associated
with overconsumption of common resources. The government have tried various options such as:
* Quotes – difficult to implement and difficult to monitor
* Legislation – on size of net size, number of fishing vessels
Compensation to move away from fishing.
An Economic Theory of Democracy (1957) Anthony
Welfare Economics and the Theory of the State (1952)
Logic of Collective Action (1965) Mancur Olson. Olson noted
Theory of public goods (1954) Paul Samuelson. Samuelson
Public goods are typically financed by business owners or the government through tax revenues. When a public good is consumed, the amount left for others to consume is not reduced, and it cannot be withheld from those who are unable to pay for it. For example, when you enjoy the air conditioning in a café, there is not less air conditioning for others to enjoy.
Faraday, Q.O., (2013). Public Finance in Global world, textbook 1st edition,