Public goods
Public goods are products and services, such as lighthouses and national defence, that can only be financed by governments, because it is not possible to devise a pricing system to enable them to be marketed.
The origins of the concept
In the 18th century, Adam Smith wrote:
- "The third and last duty of the sovereign or commonwealth is that of erecting or maintaining those public institutions and those public works, which, although they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could not repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain ."[1];
- in the 19th century, John Stuart Mill elaborated the idea, arguing as an example that it would be impossible to charge seamen according to their use of lighthouses[2];
- and in the 20th century, Paul Samuelson (who referred to public goods as "collective consumption goods") derived a formal proof of the proposition that "no decentralized pricing system can serve to determine optimally the levels of collective consumption" [3]
Possible qualifications to the above are discussed below
Defining characteristics
Pure public goods are:
- non-rivalous, meaning that several individuals can benefit from them without diminishing their benefits to their value;
- non-excludable, meaning that nobody can be prevented from benefiting from them;
- and they are often
- non-rejectable, meaning that nobody can avoid benefiting from them.
References
- ↑ Adam Smith: An Inquiry into the Nature And Causes of the Wealth of Nations, Book 5, Chapter 1, Part 3, (first published 1776)
- ↑ John Stuart Mill: Principles of Political Economy, Book 5, Chapter 10, Longmans, Green, 1848
- ↑ Paul Samuelson: The Pure Theory of Public Expenditure, Review of Economics and Statistics, vol 36 1954