Public Goods

Key Characteristics

Economists distinguish two main categories of goods: private goods and public goods. The main characteristic of private goods is that they are, or can be made, excludable. Clear property rights can be attached to them, and others can be prevented from consuming them. Examples are houses and cars that can be locked or land that can be fenced in. Many private goods are also, in economists' speak, rival in consumption, meaning that a person's consumption of the good, say, a glass of milk, diminishes or eliminates its availability for others.

Public goods, in contrast, are nonexcludable, and often, they are also nonrival in consumption. Just think of a light. Many people can look at a light, and still, its brightness remains the same. Also, it would be difficult to exclude anyone, say, from benefiting from a street light at night. It is nonexcludable and nonrival in consumption.

Public goods that have both these properties are called pure public. If a good possesses only one of these characteristics, it is said to be impure public. The atmosphere, for example, is impure public: nonexcludable but rival in consumption. Thus, an increasing volume of CO2 emissions changes its gas composition and over time gives rise to global warming.

Public goods are being further differentiated according to the reach of their effects. These can be local, national, transnational (regional and global, that is, worldwide), and intertemporal, affecting several past and present generations. As more and more countries have entered on a policy path of economic liberalization and reduced at-the-border barriers, global public goods (GPGs) have gained in importance, for two reasons.

First, greater national openness requires a certain amount of policy and infrastructure harmonization, notably on the part of not-so-powerful nations, so hitherto nationally shaped public goods (e.g., taxation systems or human rights norms) became more standardized—globalized. Second, greater porosity of borders has fostered a growing volume of cross-border movements such as international trade, investments, travel, and communication. These movements have often been accompanied by a growing volume of unintended spillover effects from abroad, such as communicable diseases, financial contagion effects, or crime and violence, and thus led to a further globalization of public goods such as public health or law and order.

Publicness and Privateness as a Choice

Publicness and privateness are often not innate properties of a good. They are the result of a choice, social or political. In fact, since the mid-1980s, when more market-oriented thinking began to sweep the world, many goods were shifted from the public domain into the private domain, the marketplace. Take, for example, television waves. They were once fully public. By now, technologies exist to scramble them so that many programs need to be purchased as a private good. Similarly, many insurance products have shifted from the public into the private sphere. In earlier years, governments launched international commodity programs to protect their countries against price fluctuations in international commodity markets. Now, farmers and governments turn to financial markets to buy such private goods as weather insurance or commodity futures and options contracts.

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