Chapter 11: Public goods and common resources

tragedy of the commons

a parable that illustrates why common resources are used more than is desirable from the standpoint of a society as a whole

fre rider

a person who receives the benefit of a good but avoids paying for it

cost benefit analysis

a study that compares the costs and benefits to society of providing a public good

club goods

are excludable but not rival in consumption.

public goods

are neither excludable nor rival in consumption People cannot be prevented from using a public good, and one person's use of a public good does not reduce another person's ability to use it. * important public goods: national defense basic research fighting poverty

common resources

are rival in consumption but not excludable. Important: clear air and water congested roads fish, whales, and other wildlife

private goods

both excludable and rival in consumption

excludable

the property of a good whereby a person can be prevented from using it

rivalry in consumption

the property of a good whereby one person's use diminishes other people's use

Summary

•Goods differ in whether they are excludable and whether they are rival in consumption. A good is excludable if it is possible to prevent someone from using it. A good is rival in consumption if one person's use of the good reduces others' ability to use the same unit of the good. Markets work best for private goods, which are both excludable and rival in consumption. Markets do not work as well for other types of goods. • Public goods are neither rival in consumption nor excludable. Examples of public goods include fireworks displays, national defense, and the creation of fundamental knowledge. Because people are not charged for their use of the public good, they have an incentive to free ride, making private provision of the good untenable. Therefore, governments provide public goods, basing their decision about the quantity of each good on cost-benefit analysis. • Common resources are rival in consumption but not excludable. Examples include common grazing land, clean air, and congested roads. Because people are not charged for their use of common resources, they tend to use them excessively. Therefore, governments use various methods to limit the use of common resources.