The classic definition of a “public good” is that it is both “non-excludable” and “non-rival.” Textbooks normally treat these traits as binary, delivering this 2 x 2 typology:
Yet in the real world, both excludability and rivalry lie on a continuum. Almost nothing is 0% excludable. If you spend enough effort, you can prevent non-payers from enjoying your product. At the same time, almost every good requires some effort to exclude non-payers. Hence, nothing is 100% excludable either.
Think about software. If you add a little security, you can prevent some people who haven’t paid you from enjoying your product. But if that’s all you do, plenty of non-payers will slip through the cracks. And the more you spend on security, the more non-payers you get to exclude.
The same goes for rivalry. Virtually nothing is 0% rival. Adding consumers almost always slightly raises cost or reduces quality. Other people at a fireworks show obstruct your view. Extra customers in a near-empty theater increase the costs of cleaning, wear-and-tear on the seats, and air conditioning costs (via body heat). At the same time, almost nothing is 100% rival. If you’re running a restaurant, you almost always end up throwing away some perfectly good food. Furthermore, some goods are more than 100% rival. It’s called congestion. Doubling driving at rush hour doesn’t just double wear-and-tear on the roads; it can easily turn 60 mph roads into 20 mph roads. You can even argue that some goods are less than 0% rival. If there are only two people in your nightclub, adding more guests improves the experience for those already there.
Despite the textbook 2 x 2 matrix, econ teachers normally insinuate that excludability and rivalry are at least positively correlated. With binary traits, this basically means that the top left and bottom right boxes contain more goods than the top right and bottom left boxes. Once you accept that excludability and rivalry lie on a continuum, however, matters become far less clear. Even assigning proper excludability-rivalry coordinates is a challenge. What, for example, are the average coordinates for Route 66 in the DC area? We’ve added electronic toll collection, so clearly the road is excludable to some degree; but adding the tolls did come at great expense. And when you don’t charge tolls, the roads are highly congested for many hours per day. Knowing what I know, I’d probably assign excludability-rivalry coordinates of (.8, 1.3). But that could be way off.
Once you’ve assigned credible excludability-rivalry coordinates, you can finally test the standard insinuation that the two traits are positively correlated. Are they really? And from there, you can explore Dan Klein’s visionary hypothesis that technological progress gradually transforms public goods into private goods. Not to mention my view that the correlation between “public goods” and “goods provided by government” is awfully low.
Public goods theory is now about 70 years old. So why has economics barely progressed beyond the simplistic textbook understanding of the problem? I suspect that it’s left-wing bias. If the textbook treatment sounds pro-market, most economists are eager to run empirical tests in the hopes of discrediting the textbook result. If the textbook treatment sounds pro-government, in contrast, most economists want to just treat it as fact and move on. Public goods theory sounds pro-government.
Hence, we see hundreds of empirical papers testing whether the minimum wage “really reduces employment,” but near-zero empirical papers that test whether government “really supplies public goods.”
Update: Jonathan Meer pointed me to this useful related piece by Jeremy Horpedahl.
READER COMMENTS
Thomas Lee Hutcheson
Sep 27 2021 at 10:40am
It’s not so much “left wing” and “right wing” (unless that is built into your definition) it’s departures from free markets that transfer income to low income workers. Mainstream economists wonder if minimum wages increase unemployment by enough to offset the transfer of income to the still employed workers.
Jose Pablo
Sep 27 2021 at 8:19pm
“(…) by enough to offset the transfer of income to the still employed workers”.
How can the money “non-employee A” is now not getting, “offset” the “additional” money employee B is now getting?
Ask employee A about this “offsetting” of yours.
Thomas Lee Hutcheson
Sep 27 2021 at 11:03pm
On the off chance you genuinely did not understand me, I mean whether the policy maker thinks the $Z increase in income of the workers who remain employed offsets the $Y loss of income of the workers who become unemployed, the $P fall in profits of the employing firm, the $Q increase in costs to consumers, and the $R lost in income in suppliers to the firm as it reduces its level of operations, etc.
Jose Pablo
Sep 29 2021 at 8:33pm
This “policy maker” of yours should have listened to the economists when they talk about “deadweight loss”, “leaking buckets” and, in general, the negative effects of price controls. But he/she is more likely thinking about winning the next election or increasing his/her responsibility within his/her party or his/her government (activities that Public Choice Theory, rightly predicts he/she will devote most of his/her time to).
And he/she should be comparing “utility” not dollars and should also be “permeable,” at least, to the argument on the impossibility of comparing utilities (De Jassay would come in handy for that, on the off chance this policy maker of yours was interested in reading him)
But I would go further, what right has this “policy maker” to take from the new unemployed (and the shareholders, and the consumers and the clients and the providers) and to giving to the worker who remains employed with a bigger salary)?
If you ask me what this policy maker of yours should be doing is looking for an alternative honest job (in the very unlikely case, he/she can perform any) at any salary he/she can get (whether minimum or otherwise).
Thomas Lee Hutcheson
Sep 27 2021 at 11:08pm
We might contrast this with the general much more negative attitude that most economists have to transfers of income to farmers through farm price supports based on income levels of taxpayers and recipient of benefits and elasticities.
Knut P. Heen
Sep 28 2021 at 5:40am
The interesting point is that no one tries to explain how the government is supposed to solve the public good problem.
Sometimes the government solves the problem by privatizing the public good. If you don’t pay for the police, the guns are directed towards you, and you go to prison. A protection racket.
Sometimes the government solves the problem by making other goods partially public goods. For example when they tax labor and capital, these goods become partially public goods. The more you tax these, the more like a public good these goods become. When taxes are “high enough”, the public goods argument is an argument for reducing taxes, not for building more pyramids.
Brandon Berg
Sep 28 2021 at 6:36am
I’ve always thought of the actual definition of public goods to be positively right-wing relative to the ubiquitous “public goods” rhetoric in which anything the speaker wants the government to spend money on is a “public good.” Health care? Highly excludable and highly rival. Not a public good, no matter how much lefties chant it. Education? Lectures may be club goods, but classroom education with two-way interaction is a private good.
A government that only funded highly non-excludable and non-rival goods would make Singapore look like France.
Lizard Man
Oct 4 2021 at 12:23am
I usually think of public goods as involving network effects that have positive externalities that tend to increase the larger the network becomes. For example, one toll highway isn’t very useful if there aren’t any streets or roads that connect it to businesses and homes. I don’t see private businesses of being capable of replacing the government simply because even with better technology, private businesses cannot capture enough of the value from expanding the network to get anywhere a socially optimal place, at least from the standpoint of the median voter.
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