Public goods and the free rider problem

Who are free riders?

Free riders are those who use a public good and dont pay for them

Why is healthcare not a public good?

Healthcare has characteristics of a private good because its rival and excludable in consumption.

What is the free rider problem?

It is a problem occuring due to the due to the non-excludable nature of public goods firms have no financial incentive to provide them.

Why does the free rider problem cause market failure?

The free rider problem leads to the underprovision of goods below the socially optimun quantity. .

Pros of govt intervention in healthcare

The government can provide universal health care so no-one dies due to lack of affordability. Health care is considered a human right and intrinsic to good quality of life. Economies of scale in government provision. The government can bulk buy medicines, supplies and also offer specialised services. If firms don't have to provide private health care costs, it will reduce the costs of employing workers.

Should the government provide public goods?

The non rival nature of consumption provides a strong case for the government to provide public goods. State provision helps under provision and under-consumption so social welfare is improved. Governments may be able to do so more efficiently because of economies of scale they are providing these goods to millions of people. Providing essential godos helps access to important goods and services for low income households.

Cons of government intervention in healthcare

The private sector may have profit incentives to cut costs and offer innovative new treatments that would be desired. Government health care will require higher tax. Higher income tax may lead to lower incentives to work (though whilst taxes will rise, health insurance costs will be lower.) Government provision may reduce the choice of individuals who prefer to choose their private insurers and doctor.

Why shouldn't the government provide public goods?

Usually state owned industries have produced goods that have not been allocatively efficient. Government becomes a monopoly, theres dangers of lack of efficiency and lack of competition. Government provision services may be limited by tax revenues causing goods and services to be rationed.