I always feel bored when reading about public and private goods in an economics textbook. The reason is the topic is generally covered by fencing off both concepts, using the concepts of rivalry and excludability. Public goods are non-rivalrous and non-excludable, and private goods are not – and then there is something in the middle: quasi public goods. It lures us into hairsplitting, whereas in my opinion, what makes the distinction between public and private goods, is of a political nature.
Obviously, some goods cannot be provided through the market, because of their non-rivalrous and non-excludable nature, but the more you think about these goods, examples given in the textbook are defense, judiciary and prison service, police service and lighting1, the more you can think of examples that contradict this. My students certainly did.
The concepts of non-rivalry and non-excludability are often used to justify that the provision of a good can be left to the market, in particular by people who want to limit government intervention and look distrustful upon common initiatives. The real issue with leaving the provision of a good to the market, or not, reaches a lot further then non-rivalry and non-excludability. Public provision of goods, be it by the government or a cooperative, is an instrument in the division and distribution of wealth. Think in this respect of housing, healthcare, and education, to name some quasi public goods.
To what extent wealth should be distributed, and which instruments to use, is a political issue, which may be inspired by the effects of inequality2. There is no recipe for this, areas, like a country, county or borough, do best to make their own choices. The Singapore government for example ownes most of the land, and supplies 85% of all housing3. The obvious choices to provide publicly, like defense, may not be so obvious when students read in their textbook that ‘[some] people […] prefer to see all defence abolished and refuse to pay to finance defence.” I do not want to profess this position, I only mean to show that to provide or not to provide public goods is a political choice in the end.
How to use this in your lesson
Although I think the distinction between what can be provided through markets and what cannot is a useful one, I think it is just that. We should not lead our students into believing that the decision what should be provided through markets is made accordingly. Instead, we should show them the political dimension of such choices, at the same time unveiling the common ground of economics and politics, because in the end choices made have to be realized within budget.
- My textbook also mentions ‘clean air’, but, although this may be non-rivalrous and non-excludable – which might not be as obvious as it seems -, nobody pays for it – at least not directly -, and therefore I think ‘free good’ is a better label for the air we breath then ‘public good’ – not to cloud the definitions.
- You can find some really interesting ideas on this topic in The Spirit Level, Why Equality is Better for Everyone, by Kate Pickett and Richard Wilkinson, 4 November 2010, Penguin Publishers.
- Source: Bad Samaritans, Ha-Joon Chang, 2007, Business Books. – Which might be the consequence of land being extremely scarce.