Question

What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free-rider problem as it relates to public goods? Is US border patrol a public good or a private good? Why? What type of good is a satellite TV? Explain.

Short answer

Public goods are non-rivalrous and non-excludable for all.

The two reasons are given below:

• The private sector’s profit motive is not achieved due to the public good’s non-excludable nature. The government’s welfare motive does not mind this.
• The zero marginal cost of providing an additional unit to an additional person due to its non-rivalrous nature is also why public provision happens.

The free-riders problem means that the parties enjoying the benefits of a good enjoy the benefits completely free of cost.

US border patrol is a public good because it is non-rivalrous and non-excludable.

Satellite TV is a private good because it involves excludability.

Step-by-step solution

Defining the characteristics of public goods

The two characteristics of public goods are as follows:

Non-rivalry: In public goods, there is no rivalry for consumption in the sense that the consumption of a good by an individual will not deprive another individual of consuming it. For example, a child playing in a park cannot deprive another child of playing in the same park. Both can play in the park limitlessly at the same time. So, the park is a public good.

Non-excludability: No individual can be excluded from taking benefit of a public good once the good is out in the market for use. For example, any child or adult can go to a public park regardless of which society or city.

The government provides public goods as it works with the social welfare approach and includes each individual of the society. The government aims to provide public goods to all the citizens irrespective of any rivalry or excludability.

In contrast, the private sector does not provide public goods because it works for-profit and, thus, involves rivalry and excludability among its customers.

Public provision of public goods

The private sector either does not produce the public goods at all or underproduces them compared to the optimal level. The profit aim of the private sector limits the production quantity despite it being non-rivalrous in nature. The problem of free-rider, which prevents excluding through price mechanism, is another reason why the private sector does not take part in this.

On the other hand, the government provides public goods as it works with the social welfare approach and includes each individual of the society. The government aims to provide public goods to all the citizens, and since the marginal cost of providing to an additional individual is zero, it can easily do so. The free-rider problem does not harm the government’s motive for welfare.

Thus, the two features of public goods result in the public provision of the goods.

The free-rider problem arises from public goods as it is not possible to charge anyone or exclude anyone from the consumption of public goods. Hence, they are available freely to everyone in the economy. The government itself bears all the cost. For example, defense services are equally utilized by all, and no citizen can be excluded from the protection given by these services.

Reason why US border patrol is a public good

US border patrol is a public good as it is equally available for all the residents of the US at the same time. Neither anyone can be excluded from its benefit, nor is it competitive for any citizen.

Reason why satellite TV is a private good

Satellite TV is pure private good because it includes the characteristic of excludability. Only those who purchase the authorization for the satellite TV can have access to it.