What is the "public goods problem" ?

Question

I've seen this in a text book, but I'm not sure what it means.

Answer 1

Public goods are normally defined as goods than are non-excludable, meaning that you can't stop someone from enjoying its use, and non-rivalrous, meaning one person's use does not affect its use by someone else. This gives rise to a free rider problem. Everyone may want a public good such as national defence, yet you would not be able to provide it via the market. Although people want it they will not pay for it as if other people pay for it they can still enjoy its use. Same with a large fireworks display. They won't pay to see it as they can just stand outside the arena and watch the display for free. Again if no one pays how will the display be funded. To solve this problem an agent, often the government, has to step in in make payment for the public good compulsory, eg. by levying a tax.

The tragedy of the commons relates to a market failure of common-pool goods. These goods differ from public goods in that use by one person does affect the use of the good by another. For example, lets say there is a common pasture used by the herds of many villagers. Each herd uses up some of the pasture so that there is less left for the others. There is a point where there is a maximum yield provided by the pasture. Beyond this the yield declines due to overgrazing. It is therefore in the common interest to be at this point. However, for an individual herder it is in their personal interest to graze a few more sheep on the pasture. The effect of a few more sheep won't matter that much and so the herder thinks they can just add some to increase their personal yield of mutton and wool. However, because all of the herders in the village have this motive they all add some more sheep. The pasture becomes very overgrazed and ends up supporting fewer sheep so everyone loses out. Like the free rider problem with public goods this is an example of a market failure. An authority of some kind is needed to correct this. In the example of the tragedy of the commons this could mean the village council imposing limits on the number of sheep. A more relevant example may be the government setting quotas to preserve fishing stocks.

Answer 2

There are few definitions of a public good, but one of them is that no one person owns them. This is largely due to the fact that the cost of ownership is not effected by any single individual. A park, a road, the air, the view, and so on are thought to be public goods. Many of the things government makes are public goods, and perhaps the original purpose of the government is to make such things, but the government obviously makes a lot of non-public goods to.

The problem is that because no one owns public goods, they degrade, or put another way, no one is compensated for producing them - but we all gain utility in consuming them -- no there is an inefficient amount of them in the economy. That is why there is a 'problem' with public goods.

Answer 3

Public goods have two characteristics. First, if one person consumes public goods, the amount available remains the same. Second, once public goods are available, no one can be stopped from consuming them for free. An example is the protection provided by police, fire departments, and the military. Knowelege, for example E=mc^2, also meets the definition. Governments often provide public goods because they can not be sold for profit in markets so individuals maximizing their own welfare will not, but that is not what makes them "public".

Answer 4

Rather, I think you're referring to the 'free-rider' dilemma. Also, there's the 'tragedy of the commons'. The 'free-rider dilemma is associated with goods that are non-excludable from anyone. An example is public fire works on the 4th of July. The 'tragedy of the commons' is a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.

Answer 5

Sounds like a reference to the overly broad application of the eminent domain laws as in the controversial case of Keno v. New London, Connecticut, decided a couple of years ago by the United States Supreme Court. Click on link in Source box below to read relevant article.