Creation of Public Goods

What It Means

In order for a good (a product or a service) to be a public good, two conditions must be met. First, the good must be nonrival. This means that if one individual uses the product or service, the supply available to other users is not diminished, so there is no rivalry or competition for the good. In this sense air is a public good because one individual who breathes air does not significantly reduce the amount of air available to other individuals. The light from a lighthouse is also a nonrival public good. If one sea captain uses the light to sail into port, that captain does not diminish the amount of light available to another captain who may also need the light; the two captains are not rivals or competitors for the light. Second, the good must be nonexcludable. This means that once the good is produced or the service is created, the manufacturer cannot prevent anyone from using it. A fireworks show is an example of a nonexcludable service. The organization setting off the fireworks cannot prevent people from looking up at the sky to witness the show. Police and firefighting forces, as well as the national defense, are considered nonexcludable public goods.

The opposite of a public good is a private good. Such goods are exhaustible, and therefore consumers compete for them. For example, once a can of soup or a piece of cake is consumed, less of that good is available to others. Also, it is possible for the manufacturer of a private good to exclude people from its use. With private goods anyone unwilling or unable to pay the asking price is excluded from using the good.

When Did It Begin

The lighthouse is one of the most frequently mentioned examples of a public good. These towerlike structures send light out to sea to help ship captains navigate at night. Lighthouses can send a number of different signals. Their light can warn a captain of a dangerous coastline, mark the entry point of a harbor, or indicate a shoal (a dangerously shallow area of water). The earliest lighthouses sent their signals by fire and later with kerosene lamps. These lamps were replaced by a system of rotating lenses that cast beams out to sea at a series of angles. Lighthouse keepers were required to wind a clockwork mechanism to set the system in motion. By the turn of the twentieth century, these systems were automated, and lighthouse keepers gradually became obsolete. Though at one time lighthouses were a crucial part of safe sea travel, only about 1,500 operational lighthouses exist today. One of the oldest and most famous lighthouses was the Lighthouse of Alexandria, which was built in the third century bc . Standing more than 400 feet high on the island of Pharos off the coast of Alexandria, Egypt, this structure lasted for over a thousand years and was for many centuries the tallest man-made building in the world.

More Detailed Information

Economic theorists often argue that there is no such thing as a pure public good, that no good or service is entirely nonrival and nonexcludable. They believe that even air and drinking water, both of which appear to be pure public goods, fail to meet the definition of a pure public good. It is possible, for example, to exclude or limit people’s access to clean air. This frequently happens in large cities, where people from the lower classes reside in smoggier, more polluted neighborhoods, and wealthier people enjoy the cleaner air of the suburbs. Though the government cannot legally prevent a poor person from breathing clean suburban air, poor people who do not own automobiles may have limited access to the suburbs. With regard to drinking water, there is competition for this resource. While drinking from a stream does not significantly diminish the amount of water in the stream available to others, there is a limited supply of bottled drinking water. When one person buys a bottle of water at the supermarket, there is one less bottle available to other buyers. In many of the world’s cities, bottled water is the only safe water to drink, and it is not made equally available to all citizens.

One example of a public good that is not considered a pure public good is the World Wide Web. In many ways (but not all) a website is nonrival and nonexcludable. First, a website is nonrival in that if one person examines it, that person’s visit to the site does prevent others from looking at it. In other words one visitor does not use the site up and leave less of it for the next visitor. In fact, a nearly unlimited number of people can examine a website at the same time. If there is merchandise for sale on the website, however, those goods are considered private goods, not public goods. For instance, if a person visits Amazon.com and buys a book, there is one less book available to rival shoppers. Thus, the goods on Amazon.com are exhaustible, but the website itself is not. Many websites are nonexcludable. This means that the people who own and operate the site have no control over who visits it. Many websites require a password, however, and those that do are excluding visitors from examining their content.

Private businesses that seek profits have little incentive to create public goods because of what is called the free-rider problem. This term refers to the tendency of consumers to obtain goods and services for free if given the chance. Fireworks displays provide a clear illustration of the free-rider problem. A consumer is unlikely to pay a five-dollar admission fee to stand in a fenced-off area of a field to watch the show if it is possible to stand on the other side of the fence and still witness the pyrotechnics. The people who watch without paying admission are free riders. Two other arenas in which the free-rider problem exists are law enforcement and the construction and maintenance of roads. No private business could provide the protection of the law to those who could pay and not to those who couldn’t, nor could a business prevent people from using roads unless they paid. For this reason local and national governments take responsibility for providing these public services, raising the money for them through taxes.

Recent Trends

Since the inception of the Internet in the mid-1990s, many people have used it to provide for the public good. Groups of people have worked together to post information and other resources on websites so that web users can access these items for free. In a process known as commons-based peer production, volunteers working separately contribute portions of a larger project to a review board, which examines the material and then posts appropriate submissions on the Internet. There it is made available to anyone who visits the website. These collaborative efforts have been responsible for posting computer software programming code, scientific data, reviews of new books and movies, and library reference materials, among other things, on the World Wide Web for public use. The book reviews available on Amazon.com are an example of commons-based peer production. Anyone who visits Amazon.com can review one of the books for sale there. Online shoppers can then read the reviews posted below the book and determine whether or not they wish to purchase the book. ClickWorkers is a website sponsored by NASA (the National Aeronautics and Space Administration) that asks volunteers to analyze data collected on space missions. Participants do not need to be trained scientists. Their work helps scientists review and classify such data as pictures taken of Mars’s topography.