Civil Engineering Reference
In-Depth Information
goods or services - due to their very nature - cannot be excluded from non-payers.
Even supporters of the free market, from Adam Smith to Milton Friedman, have
recognised that there are a few goods and services that the market mechanism does
not supply effectively. These are generally referred to as
public goods
.
In order to explain the precise nature of public goods, it is helpful to begin at
the other end of the spectrum and clarify the definition of
private goods
. Indeed,
so far in this text, private goods have been at the heart of the analysis. We have
mainly discussed the activities of private construction contractors in providing
private goods and services. These private goods (and services) are distinguished by
two basic principles. One can be termed the
principle of rivalry
.
This means that
consumption by one user reduces the supply available for others. For example, when
I use the services of a plumber, they cannot be working at the same time on your
water and heating system. We compete for the plumber's services; we are rivals for
this resource. The services of plumbers are therefore priced according to our levels
of demand and the available supply of their time, and the price system enables
plumbers to divide their attention between customers. The other principle that
characterises a private good is the
principle of exclusion
.
This simply implies that
a user can be prevented from consuming a good or service unless they pay. In short,
anyone who does not pay for the good or service is excluded. For example, if a road
bridge is set up with a tollgate, then the communications link that this bridge offers
is available only to those who pay. All others are excluded by the price mechanism.
These principles of exclusion or rivalry cannot be applied to
pure
public goods.
They are non-excludable and non-rivalrous in their characteristics. National defence,
street lighting and overseas representation are standard textbook examples of pure
public goods. A distinction is sometimes made between
pure
public goods, which are
both non-excludable and non-rivalrous, and
quasi
(near or impure) public goods,
which do not have both these characteristics. The major feature of quasi public
goods is that they are jointly consumed, but they might be excludable in some ways.
For example, to access a gas or electricity supply, or a global positioning system
requires the payment of a connection fee to benefit from a network. Hence it is
possible to apply a discriminatory pricing system and provide such services as a type
of private good.
There are, therefore, a number of distinguishing characteristics of public
goods that set them apart from normal private goods, and these are portrayed
in
Figure 10.1
. It shows a spectrum contrasting the characteristics of
pure
public
goods against those that typify
pure
private goods. Developing
Figure 10.1,
we can
describe public goods in more detail as follows.
•
Pure public goods are usually indivisible, as these goods cannot be produced or
sold in small units.
•
Public goods can be used by increasing numbers of people at no additional cost;
both the opportunity cost and marginal cost of one more user is normally zero.
•
Additional users of public goods do not deprive others of the benefit.
•
It is very difficult to charge people for a public good on the basis of how much
they use, and they cannot be bought and sold in the marketplace.
