16.17 : Important Public Goods

Public goods are services or resources provided primarily by the government because private companies often do not have an incentive to supply them at socially efficient levels. These goods are both non-excludable, meaning that people cannot be prevented from using them, and non-rivalrous, meaning that one person's use does not reduce their availability for others.

If private firms are unable to economically prevent multiple, non-paying consumers from consuming their goods, then some consumers will inevitably enjoy a “free ride” by enjoying the benefits of the privately produced good without compensating the producer. This means private firms will not be willing to provide a public good, even though the value of making the good available to all consumers exceeds the cost of producing the good.

In a situation such as this, failing to provide the public good would not be socially optimal. This is when the government can play a vital role in ensuring the efficient provision of public goods for the benefit of all citizens.

Examples of Public Goods

The government provides a range of public goods that serve the collective interest of society. These include:

1. National Defense: Protecting a nation's citizens from external threats is a key public good. Once provided, national defense benefits everyone within a country, and only the government can collect payment from everyone (in the form of taxes) to compensate for the production costs.
2. Basic Research: Basic research contributes to general knowledge, such as discoveries in mathematics or physics, that benefits society as a whole. Private companies are less likely to invest in basic research because its outcomes cannot easily be monetized, which is why the government funds such initiatives.
3. Street Lighting: Public streetlights benefit everyone in an area by improving visibility and safety at night. Since it is impractical to charge individuals for using street lighting, it is typically provided and maintained by the government.

Funding Public Goods

Public goods are funded through taxes collected from individuals and businesses. These funds enable the government to provide goods and services that benefit the entire society. By doing so, the government ensures that essential services, which private markets may not supply effectively, are available to everyone.