Missing markets – Public Goods.

The characteristics of pure public goods are non excludability; non rivalry in consumption; and non rejectable (The collective supply of a public good for all means that it cannot be rejected by people, a good example is a nuclear defence system or flood defence projects.

There are relatively few examples of pure public goods. Examples include flood control systems, some of the broadcasting services provided by the BBC, public water supplies, street lighting for roads and motorways, lighthouse protection for ships and also national defence services.

Quasi-Public Goods

A quasi-public good is a near-public good i.e. it has many but not all the characteristics of a public good. Quasi public goods are:

Public goods and market failure

• Pure public goods are not normally provided by the private sector because they would be unable to supply them for a profit.
• It is up to the government to decide what output of public goods is appropriate for society.
• To do this, it must estimate the social benefits from making public goods available

The Free Rider Problem

• Because public goods are non-excludable it is difficult to charge people for benefitting form a good or service once it is provided
• The free rider problem leads to under-provision of a good and thus causes market failure

The case for government intervention in the case of public goods

* The non-rival nature of consumption provides a strong case for the government rather than the market to provide and pay for public goods.

* Many public goods are provided more or less free at the point of use and then paid for out of general taxation or another general form of charge such as a licence fee.

* State provision may help to prevent the under-provision and under-consumption of public goods so that social welfare is improved.

* If the government provides public goods they may be able to do so more efficiently because of economies of scale.

* Direct provision of a public good by the government can help to overcome the free-rider problem which leads to market failure

flood defences      lighthouse       cameras        private prisons        fireworks world record         park in the sky


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