Glossary · Economic ideas
Public goods
A public good is something everyone can use at once and no one can be kept from using, like a streetlight or a fireworks show, so markets tend to supply too little of it.
Also called: public good, free-rider problem, non-rival, non-excludable, collective good
In plain words
A town sets off fireworks on New Year’s Eve. Everyone can watch, and one more person watching takes nothing away from the others. Try selling tickets: people just watch from their balconies. A thing like that, open to all and not used up by anyone, is a public good.
Economists use two tests. Is it rival: does my using it leave less for you? Is it excludable: can people who don’t pay be kept out? A pizza is both. A public good is neither.
That creates the free-rider problem. If you can enjoy something without paying, why pay? When everyone thinks that way, the thing doesn’t get made, even if all of them would gladly have chipped in. That is why public goods like lighthouses, flood walls or national defense are usually paid for with taxes or by groups acting together.
Example
Ten neighbors and a streetlight
A dark street has 10 houses. A streetlight costs $500 and is worth $100 to each household: $1,000 of value in all.
- Value $1,000, cost $500: clearly worth building.
- But the light shines on every house, payer or not. Each household hopes the others will pay so it can ride free.
- If each waits for the others, nobody pays and the street stays dark, though every household would have been better off paying $50.
- If the ten agree that each pays $50, through a small local tax or a neighborhood fund, the light goes up.
The problem isn’t that people don’t want it: it is that each of them can get it without paying.
One level deeper
Paul Samuelson gave the modern definition in 1954. Pure public goods are rare; many things are partly public. A road is non-rival until rush hour, when it gets crowded; a website behind a paywall is a club good.
Goods that are rival but not excludable, like fish in the open sea, are common resources: anyone can take them, and every fish taken is one fewer for the others. That leads to the tragedy of the commons.
People find clever ways around free riders: radio paid for by ads, open-source software written by volunteers and by the companies that use it, museums that ask you to pay what you wish. But for big public goods, like basic research or defense, most countries rely on taxes.
Why it matters
They are one of the classic reasons governments exist and collect taxes.
The free-rider problem shows up everywhere: group projects, shared kitchens, open-source software.
Knowing whether something is a public good helps settle who should pay for it, and how.
A common mistake
Myth: A public good is anything the government provides.
In fact: The term is about the good, not the provider. A government service can be a private good (a passport), and a public good can be paid for privately (a broadcast funded by ads). What makes a good public is that it is non-rival and non-excludable.
Questions people ask
What are examples of public goods?
Streetlights, lighthouses, fireworks displays, flood defenses, national defense, clean air, and free knowledge such as a published mathematical proof.
What is the free-rider problem?
When people can enjoy a good without paying, many won’t pay, so too little of it gets made. It is the central problem of public goods.
Is the internet a public good?
Parts of it act like one: free information that anyone can read is non-rival and hard to fence off. Internet access itself is excludable (you pay a provider), so it is closer to a club good.
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About the numbers
- This page explains a term. It is not investment advice.